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                          LOAN AND SECURITY AGREEMENT


                                 BY AND BETWEEN


                        SILICON STORAGE TECHNOLOGY, INC.


                                      AND


                          FOOTHILL CAPITAL CORPORATION


                         DATED AS OF SEPTEMBER 22, 1998




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                               TABLE OF CONTENTS
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                                                                          PAGE(S)
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1.   DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . .   1
     1.1   Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
     1.2   Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . . .  13
     1.3   Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
     1.4   Construction. . . . . . . . . . . . . . . . . . . . . . . . . . .  14
     1.5   Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . . .  14

2.   LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . .  14
     2.1   Revolving Advances. . . . . . . . . . . . . . . . . . . . . . . .  14
     2.2   Intentionally Omitted.. . . . . . . . . . . . . . . . . . . . . .  15
     2.3   Intentionally Omitted.. . . . . . . . . . . . . . . . . . . . . .  15
     2.4   Capital Expenditure Line. . . . . . . . . . . . . . . . . . . . .  15
     2.5   Overadvances. . . . . . . . . . . . . . . . . . . . . . . . . . .  16
     2.6   Interest, Rates, Payments, and Calculations.. . . . . . . . . . .  16
     2.7   Collection of Accounts. . . . . . . . . . . . . . . . . . . . . .  17
     2.8   Crediting Payments; Application of Collections. . . . . . . . . .  17
     2.9   Designated Account. . . . . . . . . . . . . . . . . . . . . . . .  18
     2.10  Maintenance of Loan Account; Statements of Obligations. . . . . .  18
     2.11  Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
     2.12  Eurodollar Rate Loans.. . . . . . . . . . . . . . . . . . . . . .  19
     2.13  Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
     2.14  Requirements of Law.. . . . . . . . . . . . . . . . . . . . . . .  21
     2.15  Indemnity.. . . . . . . . . . . . . . . . . . . . . . . . . . . .  23

3.   CONDITIONS; TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . . .  23
     3.1   Conditions Precedent to the Initial Advance and the Initial
           Capital Expenditure Loan. . . . . . . . . . . . . . . . . . . . .  23
     3.2   Conditions Precedent to all Advances and all Capital
           Expenditure Loans.. . . . . . . . . . . . . . . . . . . . . . . .  25
     3.3   Conditions Subsequent . . . . . . . . . . . . . . . . . . . . . .  25
     3.4   Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25
     3.5   Effect of Termination.. . . . . . . . . . . . . . . . . . . . . .  26
     3.6   Early Termination by Borrower.. . . . . . . . . . . . . . . . . .  26
     3.7   Termination Upon Event of Default.. . . . . . . . . . . . . . . .  26

4.   CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . .  26
     4.1   Grant of Security Interest. . . . . . . . . . . . . . . . . . . .  26
     4.2   Negotiable Collateral.. . . . . . . . . . . . . . . . . . . . . .  27
     4.3   Collection of Accounts, General Intangibles, and Negotiable
           Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
     4.4   Delivery of Additional Documentation Required.. . . . . . . . . .  27

                                       1
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     4.5   Power of Attorney.. . . . . . . . . . . . . . . . . . . . . . . .  27
     4.6   Right to Inspect. . . . . . . . . . . . . . . . . . . . . . . . .  28

5.   REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . .  28
     5.1   No Encumbrances.. . . . . . . . . . . . . . . . . . . . . . . . .  28
     5.2   Eligible Accounts.. . . . . . . . . . . . . . . . . . . . . . . .  28
     5.3   Intentionally Omitted.. . . . . . . . . . . . . . . . . . . . . .  28
     5.4   Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28
     5.5   Location of Inventory and Equipment.. . . . . . . . . . . . . . .  28
     5.6   Inventory Records.. . . . . . . . . . . . . . . . . . . . . . . .  29
     5.7   Location of Chief Executive Office; FEIN. . . . . . . . . . . . .  29
     5.8   Due Organization and Qualification; Subsidiaries. . . . . . . . .  29
     5.9   Due Authorization; No Conflict. . . . . . . . . . . . . . . . . .  29
     5.10  Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
     5.11  No Material Adverse Change. . . . . . . . . . . . . . . . . . . .  30
     5.12  Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
     5.13  Employee Benefits.. . . . . . . . . . . . . . . . . . . . . . . .  31
     5.14  Environmental Condition.. . . . . . . . . . . . . . . . . . . . .  31

6.   AFFIRMATIVE COVENANTS.. . . . . . . . . . . . . . . . . . . . . . . . .  31
     6.1   Accounting System.. . . . . . . . . . . . . . . . . . . . . . . .  31
     6.2   Collateral Reporting. . . . . . . . . . . . . . . . . . . . . . .  31
     6.3   Financial Statements, Reports, Certificates.. . . . . . . . . . .  32
     6.4   Tax Returns.. . . . . . . . . . . . . . . . . . . . . . . . . . .  33
     6.5   Information About Account Debtors.. . . . . . . . . . . . . . . .  33
     6.6   Returns.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
     6.7   Title to Equipment. . . . . . . . . . . . . . . . . . . . . . . .  33
     6.8   Maintenance of Equipment. . . . . . . . . . . . . . . . . . . . .  33
     6.9   Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
     6.10  Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
     6.11  No Setoffs or Counterclaims.. . . . . . . . . . . . . . . . . . .  35
     6.12  Location of Inventory and Equipment.. . . . . . . . . . . . . . .  35
     6.13  Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . .  35
     6.14  Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . .  35
     6.15  Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
     6.16  Year 2000 Compliance. . . . . . . . . . . . . . . . . . . . . . .  35

7.   NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . .  36
     7.1   Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . .  36
     7.2   Liens.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36
     7.3   Restrictions on Fundamental Changes.. . . . . . . . . . . . . . .  36
     7.4   Disposal of Assets. . . . . . . . . . . . . . . . . . . . . . . .  36
     7.5   Change Name.. . . . . . . . . . . . . . . . . . . . . . . . . . .  37
     7.6   Guarantee.. . . . . . . . . . . . . . . . . . . . . . . . . . . .  37

                                       2
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     7.7   Nature of Business. . . . . . . . . . . . . . . . . . . . . . . .  37
     7.8   Prepayments and Amendments. . . . . . . . . . . . . . . . . . . .  37
     7.9   Change of Control.. . . . . . . . . . . . . . . . . . . . . . . .  37
     7.10  Consignments. . . . . . . . . . . . . . . . . . . . . . . . . . .  37
     7.11  Distributions.. . . . . . . . . . . . . . . . . . . . . . . . . .  37
     7.12  Accounting Methods. . . . . . . . . . . . . . . . . . . . . . . .  38
     7.13  Investments.. . . . . . . . . . . . . . . . . . . . . . . . . . .  38
     7.14  Transactions with Affiliates. . . . . . . . . . . . . . . . . . .  38
     7.15  Suspension. . . . . . . . . . . . . . . . . . . . . . . . . . . .  38
     7.16  Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . .  38
     7.17  Use of Proceeds.. . . . . . . . . . . . . . . . . . . . . . . . .  38
     7.18  Change in Location of Chief Executive Office; Inventory and
           Equipment with Bailees. . . . . . . . . . . . . . . . . . . . . .  38
     7.19  Intentionally Omitted.. . . . . . . . . . . . . . . . . . . . . .  39
     7.20  Financial Covenant. . . . . . . . . . . . . . . . . . . . . . . .  39
     7.21  Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . .  39

8.   EVENTS OF DEFAULT.. . . . . . . . . . . . . . . . . . . . . . . . . . .  39

9.   FOOTHILL'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . .  41
     9.1   Rights and Remedies.. . . . . . . . . . . . . . . . . . . . . . .  41
     9.2   Remedies Cumulative.. . . . . . . . . . . . . . . . . . . . . . .  43

10.  TAXES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . .  43

11.  WAIVERS; INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . .  43
     11.1  Demand; Protest; etc. . . . . . . . . . . . . . . . . . . . . . .  43
     11.2  Foothill's Liability for Collateral.. . . . . . . . . . . . . . .  44
     11.3  Indemnification.. . . . . . . . . . . . . . . . . . . . . . . . .  44

12.  NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  44

13.  CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . . . . . . .  45

14.  DESTRUCTION OF BORROWER'S DOCUMENTS . . . . . . . . . . . . . . . . . .  46

15.  GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .  46
     15.1  Effectiveness.. . . . . . . . . . . . . . . . . . . . . . . . . .  46
     15.2  Successors and Assigns. . . . . . . . . . . . . . . . . . . . . .  46
     15.3  Section Headings. . . . . . . . . . . . . . . . . . . . . . . . .  47
     15.4  Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . .  47
     15.5  Severability of Provisions. . . . . . . . . . . . . . . . . . . .  47
     15.6  Amendments in Writing.. . . . . . . . . . . . . . . . . . . . . .  47
     15.7  Counterparts; Telefacsimile Execution.. . . . . . . . . . . . . .  47

                                       3
<PAGE>

     15.8  Revival and Reinstatement of Obligations. . . . . . . . . . . . .  47
     15.9  Integration.. . . . . . . . . . . . . . . . . . . . . . . . . . .  47
</TABLE>






                                       4

<PAGE>

                           LOAN AND SECURITY AGREEMENT


                                       1
<PAGE>

     THIS LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT"), is entered into as 
of September 22, 1998, between FOOTHILL CAPITAL CORPORATION, a California 
corporation ("Foothill"), with a place of business located at 11111 Santa 
Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333 and SILICON 
STORAGE TECHNOLOGY, INC., a California corporation ("Borrower"), with its 
chief executive office located at 1171 Sonora Court, Sunnyvale, California 
94086.

     The parties agree as follows:

     1.    DEFINITIONS AND CONSTRUCTION.

           1.1   DEFINITIONS.  As used in this Agreement, the following terms 
shall have the following definitions:

                 "ACCOUNT DEBTOR" means any Person who is or who may become 
obligated under, with respect to, or on account of, an Account.

                 "ACCOUNTS" means all currently existing and hereafter 
arising accounts, contract rights, and all other forms of obligations owing 
to Borrower arising out of the sale or lease of goods or the rendition of 
services by Borrower, irrespective of whether earned by performance, and any 
and all credit insurance, guaranties, or security therefor.

                 "ADJUSTED EURODOLLAR RATE" means, with respect to each 
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded 
upwards, if necessary, to the next whole multiple of 1/16 of 1% per annum) 
determined by dividing (a) the Eurodollar Rate for such Interest Period by 
(b) a percentage equal to (i) 100% minus (ii) the Reserve Percentage.  The 
Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of 
any change in the Reserve Percentage.

                 "ADVANCES" has the meaning set forth in SECTION 2.1(a).

                 "AFFILIATE" means, as applied to any Person, any other 
Person who directly or indirectly controls, is controlled by, is under common 
control with or is a director or officer of such Person.  For purposes of 
this definition, "control" means the possession, directly or indirectly, of 
the power to vote 20% or more of the securities having ordinary voting power 
for the election of directors or the direct or indirect power to direct the 
management and policies of a Person.

                 "AGREEMENT" has the meaning set forth in the preamble hereto.

                 "AUTHORIZED PERSON" means any officer or other employee of 
Borrower.

<PAGE>

                 "BANKRUPTCY CODE" means the United States Bankruptcy Code 
(11 U.S.C. Section 101 ET SEQ.), as amended, and any successor statute.

                 "BENEFIT PLAN" means a "defined benefit plan" (as defined in 
Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or 
any ERISA Affiliate has been an "employer" (as defined in Section 3(5) of 
ERISA) within the past six years.

                 "BORROWER" has the meaning set forth in the preamble to this 
Agreement.

                 "BORROWER'S BOOKS" means all of Borrower's books and records 
including:  ledgers; records indicating, summarizing, or evidencing 
Borrower's properties or assets (including the Collateral) or liabilities; 
all information relating to Borrower's business operations or financial 
condition; and all computer programs, disk or tape files, printouts, runs, or 
other computer prepared information.

                 "BORROWING BASE" has the meaning set forth in SECTION 2.1(a).

                 "BUSINESS DAY" means any day that is not a Saturday, Sunday, 
or other day on which national banks are authorized or required to close.

                 "CAPITAL EXPENDITURE LINE COMMITMENT" has the meaning set 
forth in SECTION 2.4.

                 "CAPITAL EXPENDITURE LOAN" has the meaning set forth in 
SECTION 2.4.

                 "CHANGE OF CONTROL" shall be deemed to have occurred at such 
time as a "person" or "group" (within the meaning of SECTIONS 13(d) and 
14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial 
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), 
directly or indirectly, of more than 20% of the total voting power of all 
classes of stock then outstanding of Borrower entitled to vote in the 
election of directors.

                 "CLOSING DATE" means the date on which the conditions in 
SECTION 3.1 are satisfied and the Closing Fee is paid.

                 "CODE" means the California Uniform Commercial Code.

                 "COLLATERAL" means each of the following:

                 (a)   the Accounts,

                 (b)   Borrower's Books,

<PAGE>

                 (c)   the Equipment,

                 (d)   the General Intangibles,

                 (e)   the Inventory,

                 (f)   the Investment Property,

                 (g)   the Negotiable Collateral,

                 (h)   any money, or other assets of Borrower that now or 
hereafter come into the possession, custody, or control of Foothill, and

                 (i)   the proceeds and products, whether tangible or 
intangible, of any of the foregoing, including proceeds of insurance covering 
any or all of the Collateral, and any and all Accounts, Borrower's Books, 
Equipment, General Intangibles, Inventory, Negotiable Collateral, Real 
Property, money, deposit accounts, or other tangible or intangible property 
resulting from the sale, exchange, collection, or other disposition of any of 
the foregoing, or any portion thereof or interest therein, and the proceeds 
thereof. 

                 "COLLATERAL ACCESS AGREEMENT" means a landlord waiver, 
mortgagee waiver, bailee letter, or acknowledgement agreement of any 
warehouseman, processor, lessor, consignee, or other Person in possession of, 
having a Lien upon, or having rights or interests in the Equipment or 
Inventory, in each case, in form and substance satisfactory to Foothill.

                 "COLLECTIONS" means all cash, checks, notes, instruments, 
and other items of payment (including, insurance proceeds, proceeds of cash 
sales, rental proceeds, and tax refunds).

                 "CONTROL AGREEMENT" means that certain Control Agreement 
among Borrower, Foothill and Merrill Lynch or another Person mutually 
acceptable to Borrower and Foothill.

                 "COMPLIANCE CERTIFICATE"  means a certificate substantially 
in the form of EXHIBIT C-1 and delivered by the chief financial officer of 
Borrower to Foothill.

                 "DAILY BALANCE" means, with respect to each day during the 
term of this Agreement, the amount of an Obligation owed at the end of such 
day.

                 "DEEMS ITSELF INSECURE" means that the Person deems itself 
insecure in accordance with the provisions of Section 1208 of the Code.

                 "DEFAULT" means an event, condition, or default that, with 
the giving of 

<PAGE>

notice, the passage of time, or both, would be an Event of Default.

                 "DESIGNATED ACCOUNT" means account number 1260003522 of 
Borrower maintained with Borrower's Designated Account Bank, or such other 
deposit account of Borrower (located within the United States) which has been 
designated, in writing and from time to time, by Borrower to Foothill.

                 "DESIGNATED ACCOUNT BANK" means Union Bank of California, 
whose office is located at Sunnyvale, California, and whose ABA number is 
122000496, or such other banks as may be agreed to by Foothill and Borrower 
from time to time.

                 "DILUTION" means, in each case based upon the experience of 
the immediately prior three months, the result of dividing the Dollar amount 
of (a) bad debt write-downs, discounts, advertising, returns, promotions, 
credits, or other dilutive items with respect to the Accounts, by (b) 
Borrower's Collections (excluding extraordinary items) plus the Dollar amount 
of clause (a).

                 "DILUTION RESERVE" means, as of any date of determination, 
an amount sufficient to reduce Foothill's advance rate against Eligible 
Accounts by one percentage point for each percentage point by which Dilution 
is in excess of 7.00%.

                 "DOLLARS OR $" means United States dollars.

                 "EARLY TERMINATION PREMIUM" has the meaning set forth in 
SECTION 3.6.

                 "ELIGIBLE ACCOUNTS" means those Accounts (net of unapplied 
cash and Borrower's general ledger reserve for price protection) created by 
Borrower in the ordinary course of business that arise out of Borrower's sale 
of goods or rendition of services, that strictly comply with each and all of 
the representations and warranties respecting Accounts made by Borrower to 
Foothill in the Loan Documents, and that are and at all times continue to be 
acceptable to Foothill in all respects; PROVIDED, HOWEVER, that standards of 
eligibility may be fixed and revised from time to time in good faith by 
Foothill in Foothill's reasonable credit judgment.  Eligible Accounts shall 
not include the following:

                 (a)   Accounts that the Account Debtor has failed to pay: 
(i) within 120 days of invoice date or 60 days of due date or, (ii) in the 
case of Silicon Technology Co., Ltd. (or other Persons as may be agreed to by 
Foothill and Borrower from time to time), within 135 days of invoice date or 
60 days of due date;

                 (b)   Accounts owed by an Account Debtor or its Affiliates 
where 50% or more of all Accounts owed by that Account Debtor (or its 
Affiliates) are deemed ineligible under clause (a) above;

                 (c)   Accounts with respect to which the Account Debtor is 
an 

<PAGE>

employee, Affiliate, or agent of Borrower, but excluding Silicon Technology 
Co., Ltd. so long as Borrower owns less than 20% of the outstanding capital 
stock of such company;

                 (d)   Accounts with respect to which goods are placed on 
consignment, guaranteed sale, sale or return, sale on approval, bill and 
hold, or other terms by reason of which the payment by the Account Debtor may 
be conditional;

                 (e)   Accounts that are not payable in Dollars or with 
respect to which the Account Debtor is the government of any foreign country 
or sovereign state, or of any state, province, municipality, or other 
political subdivision thereof, or of any department, agency, public 
corporation, or other instrumentality thereof;

                 (f)   Accounts with respect to which the Account Debtor is 
either (i) the United States or any department, agency, or instrumentality of 
the United States (exclusive, however, of Accounts with respect to which 
Borrower has complied, to the satisfaction of Foothill, with the Assignment 
of Claims Act, 31 U.S.C. Section 3727), or (ii) any State of the United 
States (exclusive, however, of Accounts owed by any State that does not have 
a statutory counterpart to the Assignment of Claims Act);

                 (g)   Accounts with respect to which the Account Debtor is a 
creditor of Borrower, has or has asserted a right of setoff, has disputed its 
liability, or has made any claim with respect to the Account, to the extent 
of the amount owed by Borrower to such Account Debtor;

                 (h)   Accounts with respect to an Account Debtor whose total 
obligations owing to Borrower exceed 10% of all Eligible Accounts (or (i) 25% 
of all Eligible Accounts in the case of Acer Inc., (ii) the LESSER of (a) 
$5,000,000 or (b) 25% of all Eligible Accounts in the case of Silicon 
Technology Co., Ltd., (iii) 20% of all Eligible Accounts in the case of 
Samsung Electronics Co., Ltd. and (iv) 15% of all Eligible Accounts in the 
case of each of Actron Technology Co. Ltd. (provided that Foothill is given 
satisfactory financial information for this Account Debtor) and Datel 
Electronics Ltd.), to the extent of the obligations owing by such Account 
Debtor in excess of such percentage;

                 (i)   Accounts with respect to which the Account Debtor is 
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of 
business;

                 (j)   Accounts the collection of which Foothill, in its 
reasonable credit judgment, believes to be doubtful by reason of the Account 
Debtor's financial condition; 

                 (k)   Accounts with respect to which the goods giving rise 
to such Account have not been shipped and billed to the Account Debtor, the 
services giving rise to such Account have not been performed and accepted by 
the Account Debtor, or the Account otherwise does not represent a final sale;

<PAGE>

                 (l)   Accounts with respect to which the Account Debtor is 
located in the states of New Jersey, Minnesota, or West Virginia (or any 
other state that requires a creditor to file a Business Activity Report or 
similar document in order to bring suit or otherwise enforce its remedies 
against such Account Debtor in the courts or through any judicial process of 
such state), unless Borrower has qualified to do business in New Jersey, 
Minnesota, West Virginia, or such other states, or has filed a Notice of 
Business Activities Report with the applicable division of taxation, the 
department of revenue, or with such other state offices, as appropriate, for 
the then-current year, or is exempt from such filing requirement;

                 (m)   Accounts that represent progress payments or other 
advance billings that are due prior to the completion of performance by 
Borrower of the subject contract for goods or services;

                 (n)   Accounts consisting of license or royalty fees, 
deferred distributor revenue or other non-trade Accounts;

                 (o)   Accounts resulting from Yen price sharing with Sanyo 
Electric Co., Ltd.; and 

                 (p)   In the event that 15%, or more, of Borrower's Accounts 
(other than those set forth in paragraphs (m), (n) and (o), above) are more 
than 60 days past due, then Accounts that are not payable in Dollars or with 
respect to which the Account Debtor: (i) does not maintain its chief 
executive office in the United States, or (ii) is not organized under the 
laws of the United States or any State thereof shall not be Eligible 
Accounts, unless (y) the Account is supported by an irrevocable letter of 
credit satisfactory to Foothill (as to form, substance, and issuer or 
domestic confirming bank) that has been delivered to Foothill and is directly 
drawable by Foothill, or (z) the Account is covered by credit insurance in 
form and amount, and by an insurer, satisfactory to Foothill.

                 "EQUIPMENT" means all of Borrower's present and hereafter 
acquired machinery, machine tools, motors, equipment, furniture, furnishings, 
fixtures, vehicles (including motor vehicles and trailers), tools, parts, 
goods (other than consumer goods, farm products, or Inventory), wherever 
located, including, (a) any assets acquired by Borrower with the proceeds of 
a Capital Expenditure Loan, (b) any interest of Borrower in any of the 
foregoing, and (c) all attachments, accessories, accessions, replacements, 
substitutions, additions, and improvements to any of the foregoing.

                 "ERISA" means the Employee Retirement Income Security Act of 
1974, 29 U.S.C. Sections 1000 et seq., amendments thereto, successor 
statutes, and regulations or guidance promulgated thereunder.

                 "ERISA AFFILIATE" means (a) any corporation subject to ERISA 
whose 

<PAGE>

employees are treated as employed by the same employer as the employees of 
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA 
whose employees are treated as employed by the same employer as the employees 
of Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 
of ERISA and Section 412 of the IRC, any organization subject to ERISA that 
is a member of an affiliated service group of which Borrower is a member 
under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA 
and Section 412 of the IRC, any party subject to ERISA that is a party to an 
arrangement with Borrower and whose employees are aggregated with the 
employees of Borrower under IRC Section 414(o).

                 "EURODOLLAR RATE" means, with respect to the Interest Period 
for a Eurodollar Rate Loan, the interest rate per annum (rounded upwards, if 
necessary, to the next whole multiple of 1/16 of 1% per annum) at which 
United States dollar deposits are offered to Norwest Bank Minnesota, National 
Association (or its Affiliates) by major banks in the London interbank market 
(or other Eurodollar Rate market selected by Foothill) on or about 11:00 a.m. 
(California time) two Business Days prior to the commencement of such 
Interest Period in amounts comparable to the amount of the Eurodollar Rate 
Loans requested by and available to Borrower in accordance with this 
Agreement and for a period of three months from the date of such offer.

                 "EURODOLLAR RATE LOANS" means any Advance (or any portion 
thereof) made or outstanding hereunder during any period when interest on 
such Advance (or portion thereof) is payable based on the Adjusted Eurodollar 
Rate.

                 "EVENT OF DEFAULT" has the meaning set forth in SECTION 8.

                 "FEIN" means Federal Employer Identification Number.

                 "FOOTHILL" has the meaning set forth in the preamble to this 
Agreement.

                 "FOOTHILL ACCOUNT" has the meaning set forth in SECTION 2.7.

                 "FOOTHILL EXPENSES" means all:  costs or expenses (including 
taxes, and insurance premiums) required to be paid by Borrower under any of 
the Loan Documents that are paid or incurred by Foothill; fees or charges 
paid or incurred by Foothill in connection with Foothill's transactions with 
Borrower, including, fees or charges for photocopying, notarization, couriers 
and messengers, telecommunication, public record searches (including tax 
lien, litigation, and UCC searches and including searches with the patent and 
trademark office, the copyright office, or the department of motor vehicles), 
filing, recording, publication, costs and expenses incurred by Foothill in 
the disbursement of funds to Borrower (by wire transfer or otherwise); 
charges paid or incurred by Foothill resulting from the dishonor of checks; 
costs and expenses paid or incurred by Foothill to correct any default or 
enforce any provision of the Loan Documents, or in gaining possession of, 
maintaining, handling, preserving, storing, shipping, selling, preparing for 
sale, or advertising to sell the Collateral, or 

<PAGE>

any portion thereof, irrespective of whether a sale is consummated; costs and 
expenses paid or incurred by Foothill in examining Borrower's Books; costs 
and expenses of third party claims or any other suit paid or incurred by 
Foothill in enforcing or defending the Loan Documents or in connection with 
the transactions contemplated by the Loan Documents or Foothill's 
relationship with Borrower or any guarantor; and Foothill's reasonable 
attorneys fees and expenses incurred in advising, structuring, drafting, 
reviewing, amending, terminating, enforcing, defending, or concerning the 
Loan Documents (including reasonable attorneys fees and expenses incurred in 
connection with a "workout," a "restructuring," or an Insolvency Proceeding 
concerning Borrower or any guarantor of the Obligations), irrespective of 
whether suit is brought.

                 "GAAP" means generally accepted accounting principles as in 
effect from time to time in the United States, consistently applied.

                 "GENERAL INTANGIBLES" means all of Borrower's present and 
future general intangibles and other personal property (including contract 
rights, rights arising under common law, statutes, or regulations, choses or 
things in action, goodwill, patents, trade names, trademarks, servicemarks, 
copyrights, blueprints, drawings, purchase orders, customer lists, monies due 
or recoverable from pension funds, route lists, rights to payment and other 
rights under any royalty or licensing agreements, infringement claims, 
computer programs, information contained on computer disks or tapes, 
literature, reports, catalogs, deposit accounts, insurance premium rebates, 
tax refunds, and tax refund claims), other than goods, Accounts, and 
Negotiable Collateral.

                 "GOVERNING DOCUMENTS" means the certificate or articles of 
incorporation, by-laws, or other organizational or governing documents of any 
Person.

                 "GOVERNMENTAL AUTHORITY" means any nation or government, any 
state or other political subdivision thereof and any entity exercising 
executive, legislative, judicial, regulatory or administrative functions of 
or pertaining to government.

                 "HAZARDOUS MATERIALS" means (a) substances that are defined 
or listed in, or otherwise classified pursuant to, any applicable laws or 
regulations as "hazardous substances," "hazardous materials," "hazardous 
wastes," "toxic substances," or any other formulation intended to define, 
list, or classify substances by reason of deleterious properties such as 
ignitability, corrosivity, reactivity, carcinogenicity, reproductive 
toxicity, or "EP toxicity", (b) oil, petroleum, or petroleum derived 
substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, 
produced waters, and other wastes associated with the exploration, 
development, or production of crude oil, natural gas, or geothermal 
resources, (c) any flammable substances or explosives or any radioactive 
materials, and (d) asbestos in any form or electrical equipment that contains 
any oil or dielectric fluid containing levels of polychlorinated biphenyls in 
excess of 50 parts per million.

                 "INDEBTEDNESS" means: (a) all obligations of Borrower for 
borrowed 

<PAGE>

money, (b) all obligations of Borrower evidenced by bonds, debentures, notes, 
or other similar instruments and all reimbursement or other obligations of 
Borrower in respect of letters of credit, bankers acceptances, interest rate 
swaps, or other financial products, (c) all obligations of Borrower under 
capital leases, (d) all obligations or liabilities of others secured by a 
Lien on any property or asset of Borrower, irrespective of whether such 
obligation or liability is assumed, and (e) any obligation of Borrower 
guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made, 
discounted, or sold with recourse to Borrower) any indebtedness, lease, 
dividend, letter of credit, or other obligation of any other Person.

                 "INSOLVENCY PROCEEDING" means any proceeding commenced by or 
against any Person under any provision of the Bankruptcy Code or under any 
other bankruptcy or insolvency law, assignments for the benefit of creditors, 
formal or informal moratoria, compositions, extensions generally with 
creditors, or proceedings seeking reorganization, arrangement, or other 
similar relief.

                 "INTANGIBLE ASSETS" means, with respect to any Person, that 
portion of the book value of all of such Person's assets that would be 
treated as intangibles under GAAP.

                 "INTELLECTUAL PROPERTY SECURITY AGREEMENT" means that 
certain Intellectual Property Security Agreement, of even date herewith, 
between Borrower and Foothill.

                 "INTEREST PERIOD" means, for any Eurodollar Rate Loan, the 
period commencing on the Business Day such Eurodollar Rate Loan is disbursed 
or continued, or on the Business Day on which a Reference Rate Loan is 
converted to such Eurodollar Rate Loan, and ending on the date that is one, 
two or three months thereafter, as selected by Borrower and notified to 
Foothill as provided in SECTION 2.12(a) and (b).

                 "INVENTORY" means all present and future inventory in which 
Borrower has any interest, including goods held for sale or lease or to be 
furnished under a contract of service and all of Borrower's present and 
future raw materials, work in process, finished goods, and packing and 
shipping materials, wherever located.

                 "INVESTMENT PROPERTY" has the meaning set forth in Section 
9115 of the Code.

                 "IRC" means the Internal Revenue Code of 1986, as amended, 
and the regulations thereunder.

                 "LIEN" means any interest in property securing an obligation 
owed to, or a claim by, any Person other than the owner of the property, 
whether such interest shall be based on the common law, statute, or contract, 
whether such interest shall be recorded or perfected, and whether such 
interest shall be contingent upon the occurrence of some future event or 
events or the existence of some future circumstance or circumstances, 
including the 

<PAGE>

lien or security interest arising from a mortgage, deed of trust, 
encumbrance, pledge, hypothecation, assignment, deposit arrangement, security 
agreement, adverse claim or charge, conditional sale or trust receipt, or 
from a lease, consignment, or bailment for security purposes and also 
including reservations, exceptions, encroachments, easements, rights-of-way, 
covenants, conditions, restrictions, leases, and other title exceptions and 
encumbrances affecting Real Property.

                 "LOAN ACCOUNT" has the meaning set forth in SECTION 2.10.

                 "LOAN DOCUMENTS" means this Agreement, the Disbursement 
Letter, the Lockbox Agreements, the Intellectual Property Security Agreement, 
the Control Agreement, any note or notes executed by Borrower and payable to 
Foothill, and any other agreement entered into, now or in the future, in 
connection with this Agreement.

                 "LOCKBOX ACCOUNT" shall mean a depositary account 
established pursuant to one of the Lockbox Agreements.

                 "LOCKBOX AGREEMENTS" means those certain Lockbox Operating 
Procedural Agreements and those certain Depository Account Agreements, in 
form and substance satisfactory to Borrower and Foothill, each of which is 
among Borrower, Foothill, and one of the Lockbox Banks.

                 "LOCKBOX BANKS" means Union Bank of California or such other 
banks as may be agreed to by Foothill and Borrower from time to time.

                 "LOCKBOXES" has the meaning set forth in SECTION 2.7.

                 "MATERIAL ADVERSE CHANGE" means (a) a material adverse 
change in the business, operations, results of operations, assets, 
liabilities or condition (financial or otherwise) of Borrower, (b) the 
material impairment of Borrower's ability to perform its obligations under 
the Loan Documents to which it is a party or of Foothill to enforce the 
Obligations or realize upon the Collateral, (c) a material adverse effect on 
the value of the Collateral or the amount that Foothill would be likely to 
receive (after giving consideration to delays in payment and costs of 
enforcement) in the liquidation of such Collateral, or (d) a material 
impairment of the priority of Foothill's Liens with respect to the Collateral.

                 "MATURITY DATE" has the meaning set forth in SECTION 3.4.

                 "MAXIMUM AMOUNT" means, as of any date of determination, the 
sum of (a) the Maximum Revolving Amount and (b) the outstanding Capital 
Expenditure Loans.

                 "MAXIMUM REVOLVING AMOUNT" means $25,000,000 minus the 
amount of the outstanding Capital Expenditure Loans.

<PAGE>

                 "NEGOTIABLE COLLATERAL" means all of Borrower's present and 
future letters of credit, notes, drafts, instruments, Investment Property, 
securities (including the shares of stock of Subsidiaries of Borrower), 
documents, personal property leases (wherein Borrower is the lessor), and 
chattel paper.

                 "OBLIGATIONS" means all loans, Advances, debts, principal, 
interest (including any interest that, but for the provisions of the 
Bankruptcy Code, would have accrued), premiums (including Early Termination 
Premiums), liabilities (including all amounts charged to Borrower's Loan 
Account pursuant hereto), obligations, fees, charges, costs, or Foothill 
Expenses (including any fees or expenses that, but for the provisions of the 
Bankruptcy Code, would have accrued), lease payments, guaranties, covenants, 
and duties owing by Borrower to Foothill of any kind and description (whether 
pursuant to or evidenced by the Loan Documents or pursuant to any other 
agreement between Foothill and Borrower, and irrespective of whether for the 
payment of money), whether direct or indirect, absolute or contingent, due or 
to become due, now existing or hereafter arising, and including any debt, 
liability, or obligation owing from Borrower to others that Foothill may have 
obtained by assignment or otherwise, and further including all interest not 
paid when due and all Foothill Expenses that Borrower is required to pay or 
reimburse by the Loan Documents, by law, or otherwise.

                 "OVERADVANCE" has the meaning set forth in SECTION 2.5.

                 "PARTICIPANT" means any Person to which Foothill has sold a 
participation interest in its rights under the Loan Documents.

                 "PAY-OFF LETTER" means a letter, in form and substance 
reasonably satisfactory to Foothill, from Existing Lender respecting the 
amount necessary to repay in full all of the obligations of Borrower owing to 
Existing Lender and obtain a termination or release of all of the Liens 
existing in favor of Existing Lender in and to the properties or assets of 
Borrower.

                 "PERMITTED LIENS" means (a) Liens held by Foothill, (b) 
Liens for unpaid taxes that either (i) are not yet due and payable or (ii) 
are the subject of Permitted Protests, (c) Liens set forth on SCHEDULE P-1, 
(d) the interests of lessors under operating leases and purchase money 
security interests and Liens of lessors under capital leases to the extent 
that the acquisition or lease of the underlying asset is permitted under 
SECTION 7.21 and so long as the Lien only attaches to the asset purchased or 
acquired and only secures the purchase price of the asset, (e) Liens arising 
by operation of law in favor of warehousemen, landlords, carriers, mechanics, 
materialmen, laborers, or suppliers, incurred in the ordinary course of 
business of Borrower and not in connection with the borrowing of money, and 
which Liens either (i) are for sums not yet due and payable, or (ii) are the 
subject of Permitted Protests, (f) Liens arising from deposits made in 
connection with obtaining worker's compensation or other unemployment 
insurance, (g) Liens or deposits to secure performance of bids, tenders, or 
leases (to the extent permitted under this Agreement), incurred in the 
ordinary course of 

<PAGE>

business of Borrower and not in connection with the borrowing of money, (h) 
Liens arising by reason of security for surety or appeal bonds in the 
ordinary course of business of Borrower, and (i) Liens of or resulting from 
any judgment or award that would not cause a Material Adverse Change and as 
to which the time for the appeal or petition for rehearing of which has not 
yet expired, or in respect of which Borrower is in good faith prosecuting an 
appeal or proceeding for a review, and in respect of which a stay of 
execution pending such appeal or proceeding for review has been secured.

                 "PERMITTED PROTEST" means the right of Borrower to protest 
any Lien (other than any such Lien that secures the Obligations), tax (other 
than payroll taxes or taxes that are the subject of a United States federal 
tax lien), or rental payment, provided that (a) a reserve with respect to 
such obligation is established on the books of Borrower in an amount that is 
reasonably satisfactory to Foothill, (b) any such protest is instituted and 
diligently prosecuted by Borrower in good faith, and (c) Foothill is 
satisfied that, while any such protest is pending, there will be no 
impairment of the enforceability, validity, or priority of any of the Liens 
of Foothill in and to the Collateral.

                 "PERSON" means and includes natural persons, corporations, 
limited liability companies, limited partnerships, general partnerships, 
limited liability partnerships, joint ventures, trusts, land trusts, business 
trusts, or other organizations, irrespective of whether they are legal 
entities, and governments and agencies and political subdivisions thereof.

                 "REAL PROPERTY" means any estates or interests in real 
property now owned or hereafter acquired by Borrower.

                 "REFERENCE RATE" means the variable rate of interest, per 
annum, most recently announced by Norwest Bank Minnesota, National 
Association, or any successor thereto, as its "base rate," irrespective of 
whether such announced rate is the best rate available from such financial 
institution.

                 "REFERENCE RATE LOAN" means any Advance (or portion thereof) 
made or outstanding hereunder during any period when interest on such Advance 
(or portion thereof) is payable based on the Reference Rate.

                 "REQUIREMENT OF LAW" means, as to any Person:  (a) (i) all 
statutes and regulations and (ii) court orders and injunctions, arbitrators' 
decisions, and/or similar rulings, in each instance by any Governmental 
Authority or arbitrator applicable to or binding upon such Person or any of 
such Person's property or to which such Person or any of such Person's 
property is subject; and (b) that Person's organizational documents, by-laws 
and/or other instruments which deal with corporate or similar governance, as 
applicable.

                 "RESERVE PERCENTAGE" for any Interest Period means, as of 
the date of determination thereof, the maximum percentage (rounded upward, if 
necessary to the nearest 1/100th of 1%), as determined by Foothill (or its 
Affiliates) in accordance with its (or their) 

<PAGE>

usual procedures (which determination shall be conclusive in the absence of 
manifest error), that is in effect on such date as prescribed by the Board of 
Governors of the Federal Reserve System for determining the reserve 
requirements (including supplemental, marginal, and emergency reserve 
requirements) with respect to eurocurrency funding (currently referred to as 
"eurocurrency liabilities") having a term equal to such Interest Period by 
Foothill or its Affiliates.

                 "SOLVENT" means, with respect to any Person on a particular 
date, that on such date (a) at fair valuations, all of the properties and 
assets of such Person are greater than the sum of the debts, including 
contingent liabilities, of such Person, (b) such Person is able to realize 
upon its properties and assets and pay its debts and other liabilities, 
contingent obligations and other commitments as they mature in the normal 
course of business, (c) such Person does not intend to, and does not believe 
that it will, incur debts beyond such Person's ability to pay as such debts 
mature, and (d) such Person is not engaged in business or a transaction, and 
is not about to engage in business or a transaction, for which such Person's 
properties and assets would constitute unreasonably small capital after 
giving due consideration to the prevailing practices in the industry in which 
such Person is engaged.  In computing the amount of contingent liabilities at 
any time, it is intended that such liabilities will be computed at the amount 
that, in light of all the facts and circumstances existing at such time, 
represents the amount that reasonably can be expected to become an actual or 
matured liability.

                 "STOCK PLEDGE AGREEMENT" means that certain Security 
Agreement - Stock Pledge, of even date herewith, between Borrower and 
Foothill relating to the shares of capital stock of Silicon Technology Co., 
Ltd. owned by Borrower.

                 "SUBSIDIARY" of a Person means a corporation, partnership, 
limited liability company, or other entity in which that Person directly or 
indirectly owns or controls the shares of stock or other ownership interests 
having ordinary voting power to elect a majority of the board of directors 
(or appoint other comparable managers) of such corporation, partnership, 
limited liability company, or other entity.

                 "TANGIBLE NET WORTH" means, as of any date of determination, 
the difference of (a) Borrower's total stockholder's equity, MINUS (b) the 
sum of:  (i) all Intangible Assets of Borrower, (ii) all of Borrower's 
prepaid expenses, and (iii) all amounts due to Borrower from Affiliates.

                 "VOIDABLE TRANSFER" has the meaning set forth in SECTION 
15.8.

                 "YEAR 2000 COMPLIANT" means, with regard to any Person, that 
all software in goods produced or sold by, or utilized by and material to the 
business operations or financial condition of, such entity are able to 
interpret and manipulate data on and involving all calendar dates correctly 
and without causing any abnormal ending scenario, including in relation to 
dates in and after the year 2000.

<PAGE>

           1.2   ACCOUNTING TERMS.  All accounting terms not specifically 
defined herein shall be construed in accordance with GAAP.  When used herein, 
the term "financial statements" shall include the notes and schedules 
thereto.  Whenever the term "Borrower" is used in respect of a financial 
covenant or a related definition, it shall be understood to mean Borrower on 
a consolidated basis unless the context clearly requires otherwise.

           1.3   CODE.  Any terms used in this Agreement that are defined in 
the Code shall be construed and defined as set forth in the Code unless 
otherwise defined herein.

           1.4   CONSTRUCTION.  Unless the context of this Agreement clearly 
requires otherwise, references to the plural include the singular, references 
to the singular include the plural, the term "including" is not limiting, and 
the term "or" has, except where otherwise indicated, the inclusive meaning 
represented by the phrase "and/or."  The words "hereof," "herein," "hereby," 
"hereunder," and similar terms in this Agreement refer to this Agreement as a 
whole and not to any particular provision of this Agreement.  An Event of 
Default shall "continue" or be "continuing" until such Event of Default has 
been waived in writing by Foothill.  Section, subsection, clause, schedule, 
and exhibit references are to this Agreement unless otherwise specified.  Any 
reference in this Agreement or in the Loan Documents to this Agreement or any 
of the Loan Documents shall include all alterations, amendments, changes, 
extensions, modifications, renewals, replacements, substitutions, and 
supplements, thereto and thereof, as applicable.

           1.5   SCHEDULES AND EXHIBITS.  All of the schedules and exhibits 
attached to this Agreement shall be deemed incorporated herein by reference.

     2.    LOAN AND TERMS OF PAYMENT.

           2.1   REVOLVING ADVANCES.

                 (a)   Subject to the terms and conditions of this Agreement, 
Foothill agrees to make advances ("Advances") to Borrower in an amount 
outstanding not to exceed at any one time the lesser of (i) the Maximum 
Revolving Amount or (ii) the Borrowing Base.  For purposes of this Agreement, 
"Borrowing Base", as of any date of determination, shall mean the result of:

                       (x)   THE LESSER OF (i) 80% of the value of Eligible 
           Accounts, LESS the amount, if any, of the Dilution Reserve, or 
           (ii) an amount equal to Borrower's Collections with respect to 
           Accounts for the immediately preceding 90 day period, MINUS

                       (y)   the aggregate amount of reserves, if any, 
           established by Foothill under SECTIONS 2.1(b), 6.15, and 10.

<PAGE>

                 (b)   Anything to the contrary in SECTION 2.1(a) above 
notwithstanding, Foothill may create reserves against the Borrowing Base or 
reduce its advance rates based upon Eligible Accounts without declaring an 
Event of Default if it determines that there has occurred a Material Adverse 
Change.

                 (c)   Amounts borrowed pursuant to this SECTION 2.1 may be 
repaid and, subject to the terms and conditions of this Agreement, reborrowed 
at any time during the term of this Agreement.

           2.2   INTENTIONALLY OMITTED.

           2.3   INTENTIONALLY OMITTED.

           2.4   CAPITAL EXPENDITURE LINE.  Subject to the terms and 
conditions of this Agreement, Foothill agrees to make a series of term loans 
to Borrower (each, a "Capital Expenditure Loan") in an aggregate amount at 
any one time outstanding not to exceed $6,000,000 (the "Capital Expenditure 
Line Commitment").  Each Capital Expenditure Loan shall be repayable in 36 
equal monthly installments of principal, such installments to be payable on 
the first day of each month commencing with the first day of the first month 
following the date on which the Capital Expenditure Loan is made and 
continuing on the first day of each succeeding month until and including the 
date on which the unpaid balance of the Capital Expenditure Loan is paid in 
full.  The outstanding principal balance and all accrued and unpaid interest 
under each Capital Expenditure Loan shall be due and payable upon the 
termination of this Agreement, whether by its terms, by prepayment, by 
acceleration, or otherwise.

                 Each Capital Expenditure Loan shall be made by Foothill at 
such times and in such amounts as Borrower may request in writing, shall be 
advanced directly to the applicable vendor or Borrower, as the case may be, 
and once borrowed may be prepaid in whole or in part without penalty or 
premium at any time during the term of this Agreement upon 30 days prior 
written notice by Borrower to Foothill, all such prepaid amounts to be 
applied to the installments due on all of the Capital Expenditure Loans in 
the inverse order of their maturity.  The foregoing to the contrary 
notwithstanding, (a) each requested Capital Expenditure Loan shall be in a 
principal amount of not less than (i) $250,000, or (ii) such lesser amount as 
is the then unfunded balance of the Capital Expenditure Line Commitment, (b) 
each Capital Expenditure Loan shall be in an amount, as determined by 
Foothill, not to exceed 60% of Borrower's invoice cost (net of shipping, 
freight, installation, and other so-called `soft costs') of (i) new Equipment 
that is to be purchased by Borrower with the proceeds of such Capital 
Expenditure Loan, or (ii) new Equipment that has been purchased by Borrower 
within 90 days prior to the date of the making of such Capital Expenditure 
Loan, (c) the new Equipment that is to be acquired or that has been purchased 
by Borrower must be acceptable to Foothill in all respects, it must be 
located at Borrower's place of business in the United States of America, it 
must not be a fixture, and not be intended to be affixed to real property or 
to become installed in or affixed to other goods, and (d) the aggregate 
amount of all Capital 

<PAGE>

Expenditure Loans outstanding at any time (including giving effect to any 
requested Capital Expenditure Loan) shall not exceed the lesser of cost or 
fair market value, of all of the Equipment acquired or financed with the 
proceeds of such Capital Expenditure Loans.  All amounts outstanding under 
the Capital Expenditure Loans shall constitute Obligations.

           2.5   OVERADVANCES.  If, at any time or for any reason, the amount 
of Obligations owed by Borrower to Foothill pursuant to SECTIONS 2.1 AND 2.4 
is greater than either the Dollar or percentage limitations set forth in 
SECTIONS 2.1 OR 2.4 (an "Overadvance"), Borrower immediately shall pay to 
Foothill, in cash, the amount of such excess to be used by Foothill first, to 
repay Advances outstanding under SECTION 2.1 and, thereafter, to be held by 
Foothill as cash collateral to secure Borrower's obligation to repay Foothill 
for all amounts paid pursuant to Letters of Credit.

           2.6   INTEREST, RATES, PAYMENTS, AND CALCULATIONS.

                 (a)   Interest Rate.  Except as provided in SECTION 2.6(c), 
below, all Obligations shall bear interest on the Daily Balance as follows:

                       (i)   each Eurodollar Rate Loan shall bear interest
     at a per annum rate of 3.00 percentage points above the Adjusted Eurodollar
     Rate; and

                       (ii)  all other Obligations shall bear interest at a per
     annum rate of 0.50 percentage points above the Reference Rate.

                 (b)   [Intentionally Deleted]

                 (c)   Default Rate.  Upon the occurrence and during the 
continuation of an Event of Default, all Obligations shall bear interest on 
the Daily Balance at a per annum rate equal to 4.50 percentage points above 
the Reference Rate.

                 (d)   Minimum Interest.  In no event shall the rate of 
interest chargeable hereunder for any day be less than 6.00% per annum.  To 
the extent that interest accrued hereunder at the rate set forth herein would 
be less than the foregoing minimum daily rate, the interest rate chargeable 
hereunder for such day automatically shall be deemed increased to the minimum 
rate.

                 (e)   Payments.  Interest in respect of Reference Rate Loans 
payable hereunder shall be due and payable, in arrears, on the first day of 
each month during the term hereof.  Interest in respect of each Eurodollar 
Rate Loan shall be due and payable, in arrears, on (i) the last day of the 
applicable Interest Period, and (ii) the first day of each month occurring 
during the term thereof. Borrower hereby authorizes Foothill, at its option, 
without prior notice to Borrower, to charge such interest, all Foothill 
Expenses (as and when incurred), the fees and charges provided for in 
SECTION 2.11 (as and when accrued or incurred), and all installments or other 
payments due under the Capital Expenditure Loans, or any Loan 

<PAGE>

Document to Borrower's Loan Account, which amounts thereafter shall accrue 
interest at the rate then applicable to Advances hereunder.  Any interest not 
paid when due shall be compounded and shall thereafter accrue interest at the 
rate then applicable to Advances hereunder.

                 (f)   Computation.  The Reference Rate as of the date of 
this Agreement is 8.50% per annum.  In the event the Reference Rate is 
changed from time to time hereafter, the applicable rate of interest 
hereunder automatically and immediately shall be increased or decreased by an 
amount equal to such change in the Reference Rate.  All interest and fees 
chargeable under the Loan Documents shall be computed on the basis of a 360 
day year for the actual number of days elapsed.

                 (g)   Intent to Limit Charges to Maximum Lawful Rate.  In no 
event shall the interest rate or rates payable under this Agreement, plus any 
other amounts paid in connection herewith, exceed the highest rate 
permissible under any law that a court of competent jurisdiction shall, in a 
final determination, deem applicable.  Borrower and Foothill, in executing 
and delivering this Agreement, intend legally to agree upon the rate or rates 
of interest and manner of payment stated within it; PROVIDED, HOWEVER, that, 
anything contained herein to the contrary notwithstanding, if said rate or 
rates of interest or manner of payment exceeds the maximum allowable under 
applicable law, then, IPSO FACTO as of the date of this Agreement, Borrower 
is and shall be liable only for the payment of such maximum as allowed by 
law, and payment received from Borrower in excess of such legal maximum, 
whenever received, shall be applied to reduce the principal balance of the 
Obligations to the extent of such excess.

           2.7   COLLECTION OF ACCOUNTS.  Borrower shall at all times 
maintain lockboxes (the "Lockboxes") and, immediately after the Closing Date, 
shall instruct all Account Debtors with respect to the Accounts, General 
Intangibles, and Negotiable Collateral of Borrower to remit ALL Collections 
in respect thereof to such Lockboxes.  Borrower, Foothill, and the Lockbox 
Banks shall enter into the Lockbox Agreements, which among other things shall 
provide for the opening of a Lockbox Account for the deposit of Collections 
at a Lockbox Bank.  Borrower agrees that all Collections and other amounts 
received by Borrower from any Account Debtor or any other source immediately 
upon receipt shall be deposited into a Lockbox Account.  No Lockbox Agreement 
or arrangement contemplated thereby shall be modified by Borrower without the 
prior written consent of Foothill.  Upon the terms and subject to the 
conditions set forth in the Lockbox Agreements, all amounts received in each 
Lockbox Account shall be wired each Business Day into an account (the 
"Foothill Account") maintained by Foothill at a depositary selected by 
Foothill.

           2.8   CREDITING PAYMENTS; APPLICATION OF COLLECTIONS.  The receipt 
of any Collections by Foothill (whether from transfers to Foothill by the 
Lockbox Banks pursuant to the Lockbox Agreements or otherwise) immediately 
shall be applied provisionally to reduce the Obligations outstanding under 
SECTION 2.1, but shall not be considered a payment on account unless such 
Collection item is a wire transfer of immediately available federal funds 

<PAGE>

and is made to the Foothill Account or unless and until such Collection item 
is honored when presented for payment.  From and after the Closing Date, 
Foothill shall be entitled to charge Borrower for one Business Day of 
`clearance' or `float' at the rate set forth in SECTION 2.6(a)(i) or 
SECTION 2.6(c)(ii), as applicable, on all Collections that are received by 
Foothill (regardless of whether forwarded by the Lockbox Banks to Foothill, 
whether provisionally applied to reduce the Obligations under SECTION 2.1, or 
otherwise).  This across-the-board one Business Day clearance or float charge 
on all Collections is acknowledged by the parties to constitute an integral 
aspect of the pricing of Foothill's financing of Borrower, and shall apply 
irrespective of the characterization of whether receipts are owned by 
Borrower or Foothill, and whether or not there are any outstanding Advances, 
the effect of such clearance or float charge being the equivalent of charging 
one Business Day of interest on such Collections.  Should any Collection item 
not be honored when presented for payment, then Borrower shall be deemed not 
to have made such payment, and interest shall be recalculated accordingly.  
Anything to the contrary contained herein notwithstanding, any Collection 
item shall be deemed received by Foothill only if it is received into the 
Foothill Account on a Business Day on or before 11:00 a.m. California time.  
If any Collection item is received into the Foothill Account on a 
non-Business Day or after 11:00 a.m. California time on a Business Day, it 
shall be deemed to have been received by Foothill as of the opening of 
business on the immediately following Business Day.

           2.9   DESIGNATED ACCOUNT.  Foothill is authorized to make the 
Advances and the Capital Expenditure Loans under this Agreement based upon 
telephonic or other instructions received from anyone purporting to be an 
Authorized Person, or without instructions if pursuant to SECTION 2.6(e). 
Borrower agrees to establish and maintain the Designated Account with the 
Designated Account Bank for the purpose of receiving the proceeds of the 
Advances and the Capital Expenditure Loans requested by Borrower and made by 
Foothill hereunder.  Unless otherwise agreed by Foothill and Borrower, any 
Advance and the Capital Expenditure Loans requested by Borrower and made by 
Foothill hereunder shall be made to the Designated Account.

           2.10  MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS. 
Foothill shall maintain an account on its books in the name of Borrower (the 
"Loan Account") on which Borrower will be charged with all Advances, and all 
Capital Expenditure Loans made by Foothill to Borrower or for Borrower's 
account, including, accrued interest, Foothill Expenses, and any other 
payment Obligations of Borrower.  In accordance with SECTION 2.8, the Loan 
Account will be credited with all payments received by Foothill from Borrower 
or for Borrower's account, including all amounts received in the Foothill 
Account from any Lockbox Bank.  Foothill shall render statements regarding 
the Loan Account to Borrower, including principal, interest, fees, and 
including an itemization of all charges and expenses constituting Foothill 
Expenses owing, and such statements shall be conclusively presumed to be 
correct and accurate and constitute an account stated between Borrower and 
Foothill unless, within 30 days after receipt thereof by Borrower, Borrower 
shall deliver to Foothill written objection thereto describing the error or 
errors contained in any such statements.

<PAGE>

           2.11  FEES.  Borrower shall pay to Foothill the following fees:

                 (a)   Closing Fee.  On the Closing Date, a closing fee of 
$250,000 shall be fully earned by Foothill.  $125,000 of the closing fee 
shall be payable on the Closing Date and $62,500 of such fee shall be payable 
on each of the first and second anniversaries of the Closing Date;

                 (b)   Unused Line Fee.  On the first day of each month 
during the term of this Agreement, an unused line fee in an amount equal to 
0.25% per annum times the difference between the average Daily Balance of the 
Advances that were outstanding during the immediately preceding month and 
$5,000,000.

                 (c)   Servicing Fee.  On the first day of each month during 
the term of this Agreement, and thereafter so long as any Obligations are 
outstanding, a servicing fee in an amount equal to $2,500; and

                 (d)   Financial Examination, Documentation, and Appraisal 
Fees.  Foothill's customary fee of $650 per day per examiner, plus 
out-of-pocket expenses for each financial analysis and examination (i.e., 
audits) of Borrower performed by personnel employed by Foothill; Foothill's 
customary appraisal fee of $1,500 per day per appraiser, plus out-of-pocket 
expenses for each appraisal of the Collateral performed by personnel employed 
by Foothill; and, the actual charges paid or incurred by Foothill if it 
elects to employ the services of one or more third Persons to perform such 
financial analyses and examinations (i.e., audits) of Borrower or to appraise 
the Collateral; PROVIDED, HOWEVER, that prior to the occurrence of an Event 
of Default, Borrower shall not be responsible to pay (i) for more than 20 man 
days in any consecutive 12 month period for financial analysis and 
examinations conducted by personal employed by Foothill plus (ii) Foothill's 
out-of-pocket expenses.

           2.12  EURODOLLAR RATE LOANS.  Any other provisions herein to the 
contrary notwithstanding, the following provisions shall govern with respect 
to Eurodollar Rate Loans as to the matters covered:

                 (a)   BORROWING; CONVERSION; CONTINUATION.  Borrower may 
from time to time, on or after the Closing Date (and subject to the 
satisfaction of the requirements of SECTIONS 3.1 AND 3.2), request in a 
written or telephonic communication with Foothill:  (i) Advances to 
constitute Eurodollar Rate Loans; (ii) that Reference Rate Loans be converted 
into Eurodollar Rate Loans; or (iii) that existing Eurodollar Rate Loans 
continue for an additional Interest Period.  Any such request shall specify 
the aggregate amount of the requested Eurodollar Rate Loans, the proposed 
funding date therefor (which shall be a Business Day, and with respect to 
continued Eurodollar Rate Loans shall be the last day of the Interest Period 
of the existing Eurodollar Rate Loans being continued), and the proposed 
Interest Period (in each case subject to the limitations set forth below).  
Eurodollar Rate Loans may only be made, continued, or extended if, as of the 
proposed funding date therefor, each of the following conditions is satisfied:

<PAGE>

                       (v)   no Event of Default exists;

                       (w)   no more than five Interest Periods may be in 
           effect at any one time;

                       (x)   the amount of each Eurodollar Rate Loan 
           borrowed, converted, or continued must be in an amount not less 
           than $1,000,000 and integral multiples of $250,000 in excess 
           thereof;

                       (y)   Foothill shall have determined that the Interest 
           Period or Adjusted Eurodollar Rate is available to it and can be 
           readily determined as of the date of the request for such 
           Eurodollar Rate Loan by Borrower; and

                       (z)   Foothill shall have received such request at 
           least two Business Days prior to the proposed funding date 
           therefor.

                 Any request by Borrower to borrow Eurodollar Rate Loans, to 
convert Reference Rate Loans to Eurodollar Rate Loans, or to continue any 
existing Eurodollar Rate Loans shall be irrevocable, except to the extent 
that Foothill shall determine under SECTIONS 2.12(a), 2.13 or 2.14 that such 
Eurodollar Rate Loans cannot be made or continued.

                 (b)   DETERMINATION OF INTEREST PERIOD.  By giving notice as 
set forth in SECTION 2.12(a), Borrower shall select an Interest Period for 
such Eurodollar Rate Loan.  The determination of the Interest Period shall be 
subject to the following provisions:

                       (i)   in the case of immediately successive Interest 
           Periods, each successive Interest Period shall commence on the day 
           on which the next preceding Interest Period expires;

                       (ii)  if any Interest Period would otherwise expire on 
           a day which is not a Business Day, the Interest Period shall be 
           extended to expire on the next succeeding Business Day; PROVIDED, 
           HOWEVER, that if the next succeeding Business Day occurs in the 
           following calendar month, then such Interest Period shall expire 
           on the immediately preceding Business Day;

                       (iii) if any Interest Period begins on the last 
           Business Day of a month, or on a day for which there is no 
           numerically corresponding day in the calendar month at the end of 
           such Interest Period, then the Interest Period shall end on the 
           last Business Day of the calendar month at the end of such 
           Interest Period; and

                       (iv)  Borrower may not select an Interest Period which 
           expires later than the Maturity Date.

<PAGE>

                 (c)   AUTOMATIC CONVERSION: OPTIONAL CONVERSION BY FOOTHILL. 
 Any Eurodollar Rate Loan shall automatically convert to a Reference Rate 
Loan upon the last day of the applicable Interest Period, unless Foothill has 
received a request to continue such Eurodollar Rate Loan at least two 
Business Days prior to the end of such Interest Period in accordance with the 
terms of SECTION 2.12(a).  Any Eurodollar Rate Loan shall, at Foothill's 
option, upon notice to Borrower, immediately convert to a Reference Rate Loan 
in the event that (i) an Event of Default shall have occurred and be 
continuing or (ii) this Agreement shall terminate, and Borrower shall pay to 
Foothill any amounts required by SECTION 2.15 as a result thereof.

           2.13  ILLEGALITY.  Any other provision herein to the contrary 
notwithstanding, if the adoption of or any change in any Requirement of Law 
or in the interpretation or application thereof by a Governmental Authority 
made subsequent to the Closing Date shall make it unlawful for Foothill to 
make or maintain Eurodollar Rate Loans as contemplated by this Agreement, (a) 
the obligation of Foothill hereunder to make Eurodollar Rate Loans, continue 
Eurodollar Rate Loans as such, and convert Reference Rate Loans to Eurodollar 
Rate Loans shall forthwith be suspended and (b) Foothill's then outstanding 
Eurodollar Rate Loans, if any, shall be converted automatically to Reference 
Rate Loans on the respective last days of the then current Interest Periods 
with respect thereto or within such earlier period as required by law; 
PROVIDED, HOWEVER, that before making any such demand, Foothill agrees to use 
reasonable efforts (consistent with its internal policy and legal and 
regulatory restrictions and so long as such efforts would not be 
disadvantageous to it, in its reasonable discretion, in any legal, economic, 
or regulatory manner) to designate a different lending office if the making 
of such a designation would allow Foothill or its lending office to continue 
to perform its obligations to make Eurodollar Rate Loans.  If any such 
conversion of a Eurodollar Rate Loan occurs on a day which is not the last 
day of the then current Interest Period with respect thereto, Borrower shall 
pay to Foothill such amounts, if any, as may be required pursuant to 
SECTION 2.14.  If circumstances subsequently change so that Foothill shall 
determine that it is no longer so affected, Foothill will promptly notify, 
and upon receipt of such notice, the obligations of Foothill to make or 
continue Eurodollar Rate Loans or to convert Reference Rate Loans into 
Eurodollar Rate Loans shall be reinstated.

           2.14  REQUIREMENTS OF LAW.

                 (a)   If the adoption of or any change in any Requirement of 
Law or in the interpretation or application thereof by a Governmental 
Authority made subsequent to the Closing Date or compliance by Foothill with 
any request or directive (whether or not having the force of law) from any 
central bank or other Governmental Authority made subsequent to the Closing 
Date

                       (i)   shall subject Foothill to any tax, levy, charge, 
           fee, reduction, or withholding of any kind whatsoever with respect 
           to Eurodollar Rate Loans, or change the basis of taxation of 
           payments to Foothill in respect 

<PAGE>

           thereof (except for the establishment of a tax based on the net 
           income of Foothill or changes in the rate of tax on the net income 
           of Foothill);

                       (ii)  shall in respect of Eurodollar Rate Loans 
           impose, modify or hold applicable any reserve, special deposit, 
           compulsory loan, or similar requirement against assets held by, 
           deposits or other liabilities in or for the account of, Advances 
           or other extensions of credit by, or any other acquisition of 
           funds by, any office of Foothill; or

                       (iii) shall impose on Foothill any other condition 
           with respect to Eurodollar Rate Loans;

and the result of any of the foregoing is to increase the cost to Foothill, 
by an amount which Foothill deems to be material, of making, converting into, 
continuing, or maintaining Eurodollar Rate Loans or to increase the cost to 
Foothill in respect of Eurodollar Rate Loans, by an amount which Foothill 
deems to be material, or to reduce any amount receivable hereunder in respect 
of Eurodollar Rate Loans, or to forego any other sum payable thereunder or 
make any payment on account thereof in respect of Eurodollar Rate Loans, 
then, in any such case, Borrower shall promptly pay Foothill, upon its 
demand, any additional amounts necessary to compensate Foothill for such 
increased cost or reduced amount receivable; PROVIDED, HOWEVER, that before 
making any such demand, Foothill agrees to use reasonable efforts (consistent 
with its internal policy and legal and regulatory restrictions and so long as 
such efforts would not be disadvantageous to it, in its reasonable 
discretion, in any legal, economic, or regulatory manner) to designate a 
different Eurodollar lending office if the making of such designation would 
allow Foothill or its Eurodollar lending office to continue to perform its 
obligations to make Eurodollar Rate Loans or to continue to fund or maintain 
Eurodollar Rate Loans and avoid the need for, or materially reduce the amount 
of, such increased cost.  If Foothill becomes entitled to claim any 
additional amounts pursuant to this SECTION 2.14, Foothill shall promptly 
notify Borrower of the event by reason of which it has become so entitled.  A 
certificate as to any additional amounts payable pursuant to this SECTION 2.14
submitted in reasonable detail by Foothill to Borrower shall be conclusive in 
the absence of manifest error.  Within five Business Days after Foothill 
notifies Borrower of any increased cost pursuant to the foregoing provisions 
of this SECTION 2.14, Borrower may convert all Eurodollar Rate Loans then 
outstanding into Reference Rate Loans in accordance with SECTION 2.12 and, 
additionally, reimburse Foothill for any cost in accordance with SECTION 2.15.
This covenant shall survive the termination of this Agreement and the payment 
of the Advances and all other amounts payable hereunder for nine months 
following such termination and repayment.

                 (b)   If Foothill shall have determined that the adoption of 
or any change in any Requirement of Law regarding capital adequacy or in the 
interpretation or application thereof by a Governmental Authority made 
subsequent to the Closing Date or compliance by Foothill or any Person 
controlling Foothill with any request or directive regarding capital adequacy 
(whether or not having the force of law) from any Governmental 

<PAGE>

Authority made subsequent to the Closing Date does or shall have the effect 
of increasing the amount of capital required to be maintained or reducing the 
rate of return on Foothill's or such Person's capital as a consequence of its 
obligations hereunder to a level below that which Foothill or such Person 
could have achieved but for such change or compliance (taking into 
consideration Foothill's or such Person's policies with respect to capital 
adequacy) by an amount deemed by Foothill to be material, then from time to 
time, after submission by Foothill to Borrower of a prompt written request 
therefor, Borrower shall pay to Foothill such additional amount or amounts as 
will compensate Foothill or such Person for such reduction.  This covenant 
shall survive the termination of this Agreement and the payment of the 
Advances and all other amounts payable hereunder for nine months following 
such termination and repayment.

           2.15  INDEMNITY.  Borrower agrees to indemnify Foothill and to 
hold Foothill harmless from any loss or expense which Foothill may sustain or 
incur as a consequence of (a) default by Borrower in payment when due of the 
principal amount of or interest on any Eurodollar Rate Loan, (b) default by 
Borrower in making a Borrowing of, conversion into, or continuation of 
Eurodollar Rate Loans after Borrower has given a notice requesting the same 
in accordance with the provisions of this Agreement, (c) default by Borrower 
in making any prepayment of a Eurodollar Rate Loan after Borrower has given a 
notice thereof in accordance with the provisions of this Agreement, or (d) 
the making of a prepayment of Eurodollar Rate Loans on a day which is not the 
last day of an Interest Period with respect thereto (whether due to the 
termination of this Agreement, upon an Event of Default, or otherwise), 
including, in each case, any such loss or expense (but excluding loss of 
margin or anticipated profits) arising from the reemployment of funds 
obtained by it or from fees payable to terminate the deposits from which such 
funds were obtained; PROVIDED, HOWEVER, that Foothill, if requesting 
indemnification, shall have delivered to the Borrower a certificate as to the 
amount of such loss or expense, which certificate shall be conclusive in the 
absence of manifest error. Calculation of all amounts payable to Foothill 
under this SECTION 2.15 shall be made as though Foothill had actually funded 
the relevant Eurodollar Rate Loan through the purchase of a deposit bearing 
interest at the Eurodollar Rate in an amount equal to the amount of such 
Eurodollar Rate Loan and having a maturity comparable to the relevant 
Interest Period; PROVIDED, HOWEVER, that Foothill may fund each of the 
Eurodollar Rate Loans in any manner it sees fit, and the foregoing assumption 
shall be utilized only for the calculation of amounts payable under this 
SECTION 2.15.  This covenant shall survive the termination of this Agreement 
and the payment of the Loans and all other amounts payable hereunder for a 
period of nine months thereafter.

     3.    CONDITIONS; TERM OF AGREEMENT.

           3.1   CONDITIONS PRECEDENT TO THE INITIAL ADVANCE AND THE INITIAL 
CAPITAL EXPENDITURE LOAN.  The obligation of Foothill to make the initial 
Advance or to make the initial Capital Expenditure Loan is subject to the 
fulfillment, to the satisfaction of Foothill and its counsel, of each of the 
following conditions on or before the Closing Date:

                 (a)   the Closing Date shall occur on or before September 30,
1998;

<PAGE>

                 (b)   Foothill shall have received each of the following 
documents, duly executed, and each such document shall be in full force and 
effect:

                       a.    the Lockbox Agreements;

                       b.    [intentionally deleted];

                       c.    the Intellectual Property Security Agreement;

                       d.    the Stock Pledge Agreement;

                 (c)   Foothill shall have received a certificate from the 
Secretary of Borrower attesting to the resolutions of Borrower's Board of 
Directors authorizing its execution, delivery, and performance of this 
Agreement and the other Loan Documents to which Borrower is a party and 
authorizing specific officers of Borrower to execute the same;

                 (d)   Foothill shall have received copies of Borrower's 
Governing Documents, as amended, modified, or supplemented to the Closing 
Date, certified by the Secretary of Borrower;

                 (e)   Foothill shall have received a certificate of status 
with respect to Borrower, dated within 10 days of the Closing Date, such 
certificate to be issued by the appropriate officer of the jurisdiction of 
organization of Borrower, which certificate shall indicate that Borrower is 
in good standing in such jurisdiction;

                 (f)   Foothill shall have received certificates of status 
with respect to Borrower, each dated within 15 days of the Closing Date, such 
certificates to be issued by the appropriate officer of the jurisdictions in 
which its failure to be duly qualified or licensed would constitute a 
Material Adverse Change, which certificates shall indicate that Borrower is 
in good standing in such jurisdictions;

                 (g)   Foothill shall have received a certificate of 
insurance, together with the endorsements thereto, as are required by 
SECTION 6.10, the form and substance of which shall be satisfactory to 
Foothill and its counsel;

                 (h)   Foothill shall have received confirmation that its 
UCC-1 Financing Statements have been duly filed with all appropriate 
jurisdictions;

                 (i)   Foothill shall have received an opinion of Borrower's 
counsel in form and substance satisfactory to Foothill in its discretion;

                 (j)   Foothill shall have received evidence, satisfactory to 
it, that Borrower has paid its 1997 property taxes, in full;

<PAGE>

                 (k)   Foothill shall have received letters from Borrower to 
its Account Debtors notifying them of Foothill's security interest in the 
Accounts, which letters will not be sent out by Foothill unless an Event of 
Default has occurred; and

                 (l)   all other documents and legal matters in connection 
with the transactions contemplated by this Agreement shall have been 
delivered, executed, or recorded and shall be in form and substance 
satisfactory to Foothill and its counsel.

           3.2   CONDITIONS PRECEDENT TO ALL ADVANCES AND ALL CAPITAL 
EXPENDITURE LOANS. The following shall be conditions precedent to all 
Advances and all Capital Expenditure Loans hereunder:

                 (a)   the representations and warranties contained in this 
Agreement and the other Loan Documents shall be true and correct in all 
respects on and as of the date of such extension of credit, as though made on 
and as of such date (except to the extent that such representations and 
warranties relate solely to an earlier date); 

                 (b)   no Default or Event of Default shall have occurred and 
be continuing on the date of such extension of credit, nor shall either 
result from the making thereof; and

                 (c)   no injunction, writ, restraining order, or other order 
of any nature prohibiting, directly or indirectly, the extending of such 
credit shall have been issued and remain in force by any governmental 
authority against Borrower, Foothill, or any of their Affiliates.

           3.3   CONDITIONS SUBSEQUENT.  As conditions subsequent to initial 
closing hereunder, Borrower shall perform or cause to be performed the 
following (the failure by Borrower to so perform or cause to be performed 
constituting an Event of Default):

                 (a)   within 45 days of the Closing Date, deliver to 
Foothill Collateral Access Agreements with the lessors of Borrower's 
locations in Sunnyvale, California;

                 (b)   within 90 days of the Closing Date, deliver to 
Foothill the certified copies of the policies of insurance, together with the 
endorsements thereto, as are required by SECTION 6.10, the form and substance 
of which shall be satisfactory to Foothill and its counsel;

                 (c)   within 90 days of the Closing Date, deliver to 
Foothill the Control Agreement; and

                 (d)   promptly upon Foothill's request, deliver to Foothill 
any and all documents, instruments, or the like that Foothill may reasonably 
require in order to perfect its 

<PAGE>

security interest in any Collateral now or in the future located in, 
including intellectual property rights registered in, the Philippines or 
Japan.

           3.4   TERM.  This Agreement shall become effective upon the 
execution and delivery hereof by Borrower and Foothill and shall continue in 
full force and effect for a term ending on the date (the "Maturity Date") 
that is three years from the Closing Date, unless sooner terminated pursuant 
to the terms hereof.  The foregoing notwithstanding, Foothill shall have the 
right to terminate its obligations under this Agreement immediately and 
without notice upon the occurrence and during the continuation of an Event of 
Default.

           3.5   EFFECT OF TERMINATION.  On the date of termination of this 
Agreement, all Obligations (including contingent reimbursement obligations of 
Borrower with respect to any outstanding Letters of Credit) immediately shall 
become due and payable without notice or demand.  No termination of this 
Agreement, however, shall relieve or discharge Borrower of Borrower's duties, 
Obligations, or covenants hereunder, and Foothill's continuing security 
interests in the Collateral shall remain in effect until all Obligations have 
been fully and finally discharged and Foothill's obligation to provide 
additional credit hereunder is terminated.

           3.6   EARLY TERMINATION BY BORROWER.  The provisions of SECTION 
3.4 that allow termination of this Agreement by Borrower only on the Maturity 
Date, notwithstanding, Borrower has the option, at any time upon 90 days 
prior written notice to Foothill, to terminate this Agreement by paying to 
Foothill, in cash, the Obligations, in full, together with a premium (the 
"Early Termination Premium") equal to (a) 2.00% of the Maximum Amount if such 
termination occurs within one year of the Closing Date, and (b) 1.00% of the 
Maximum Amount if such termination occurs after one year from the Closing 
Date but prior to six months before the Termination Date. If such termination 
occurs within six months of the Termination Date there shall not be an Early 
Termination Premium.

           3.7   TERMINATION UPON EVENT OF DEFAULT.  If Foothill terminates 
this Agreement upon the occurrence of an Event of Default, in view of the 
impracticability and extreme difficulty of ascertaining actual damages and by 
mutual agreement of the parties as to a reasonable calculation of Foothill's 
lost profits as a result thereof, Borrower shall pay to Foothill upon the 
effective date of such termination, a premium in an amount equal to the Early 
Termination Premium.  The Early Termination Premium shall be presumed to be 
the amount of damages sustained by Foothill as the result of the early 
termination and Borrower agrees that it is reasonable under the circumstances 
currently existing.  The Early Termination Premium provided for in this 
SECTION 3.7 shall be deemed included in the Obligations.

<PAGE>

     4.    CREATION OF SECURITY INTEREST.

           4.1   GRANT OF SECURITY INTEREST.  Borrower hereby grants to 
Foothill a continuing security interest in all currently existing and 
hereafter acquired or arising Collateral in order to secure prompt repayment 
of any and all Obligations and in order to secure prompt performance by 
Borrower of each of its covenants and duties under the Loan Documents.  
Foothill's security interests in the Collateral shall attach to all 
Collateral without further act on the part of Foothill or Borrower. Anything 
contained in this Agreement or any other Loan Document to the contrary 
notwithstanding, except for the sale of Inventory to buyers in the ordinary 
course of business, Borrower has no authority, express or implied, to dispose 
of any item or portion of the Collateral.

           4.2   NEGOTIABLE COLLATERAL.  In the event that any Collateral, 
including proceeds, is evidenced by or consists of Negotiable Collateral, 
Borrower, immediately upon the request of Foothill, shall endorse and deliver 
physical possession of such Negotiable Collateral to Foothill.

           4.3   COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE 
COLLATERAL.  Foothill or Foothill's designee may at any time that an Event of 
Default has occurred and has not been cured by Borrower or waived by Foothill 
(a) notify customers or Account Debtors of Borrower that the Accounts, 
General Intangibles, or Negotiable Collateral have been assigned to Foothill 
or that Foothill has a security interest therein, and (b) collect the 
Accounts, General Intangibles, and Negotiable Collateral directly and charge 
the collection costs and expenses to the Loan Account. Borrower agrees that 
it will hold in trust for Foothill, as Foothill's trustee, any Collections 
that it receives and immediately will deliver said Collections to Foothill in 
their original form as received by Borrower.

           4.4   DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED.  At any time 
upon the request of Foothill, Borrower shall execute and deliver to Foothill 
all financing statements, continuation financing statements, fixture filings, 
security agreements, pledges, assignments, control agreements, endorsements 
of certificates of title, applications for title, affidavits, reports, 
notices, schedules of accounts, letters of authority, and all other documents 
that Foothill reasonably may request, in form satisfactory to Foothill, to 
perfect and continue perfected Foothill's security interests in the 
Collateral, and in order to fully consummate all of the transactions 
contemplated hereby and under the other the Loan Documents.

           4.5   POWER OF ATTORNEY.  Borrower hereby irrevocably makes, 
constitutes, and appoints Foothill (and any of Foothill's officers, 
employees, or agents designated by Foothill) as Borrower's true and lawful 
attorney, with power to (a) if Borrower refuses to, or fails timely to 
execute and deliver any of the documents described in SECTION 4.4, sign the 
name of Borrower on any of the documents described in SECTION 4.4, (b) at any 
time that an Event of Default has occurred and is continuing or Foothill 
deems itself insecure, sign Borrower's name on any invoice or bill of lading 
relating to any Account, drafts against Account Debtors, schedules and 
assignments of Accounts, verifications of Accounts, and 

<PAGE>

notices to Account Debtors, (c) send requests for verification of Accounts, 
(d) endorse Borrower's name on any Collection item that may come into 
Foothill's possession, (e) at any time that an Event of Default has occurred 
and is continuing or Foothill deems itself insecure, notify the post office 
authorities to change the address for delivery of Borrower's mail to an 
address designated by Foothill, to receive and open all mail addressed to 
Borrower, and to retain all mail relating to the Collateral and forward all 
other mail to Borrower, (f) at any time that an Event of Default has occurred 
and is continuing or Foothill deems itself insecure, make, settle, and adjust 
all claims under Borrower's policies of insurance and make all determinations 
and decisions with respect to such policies of insurance, and (g) at any time 
that an Event of Default has occurred and is continuing or Foothill deems 
itself insecure, settle and adjust disputes and claims respecting the 
Accounts directly with Account Debtors, for amounts and upon terms that 
Foothill determines to be reasonable, and Foothill may cause to be executed 
and delivered any documents and releases that Foothill determines to be 
necessary.  The appointment of Foothill as Borrower's attorney, and each and 
every one of Foothill's rights and powers, being coupled with an interest, is 
irrevocable until all of the Obligations have been fully and finally repaid 
and performed and Foothill's obligation to extend credit hereunder is 
terminated.

           4.6   RIGHT TO INSPECT.  Foothill (through any of its officers, 
employees, or agents) shall have the right, from time to time hereafter to 
inspect Borrower's Books and to check, test, and appraise the Collateral in 
order to verify Borrower's financial condition or the amount, quality, value, 
condition of, or any other matter relating to, the Collateral.

     5.    REPRESENTATIONS AND WARRANTIES.

           In order to induce Foothill to enter into this Agreement, Borrower 
makes the following representations and warranties which shall be true, 
correct, and complete in all respects as of the date hereof, and shall be 
true, correct, and complete in all respects as of the Closing Date, and at 
and as of the date of the making of each Advance or Capital Expenditure Loan 
made thereafter, as though made on and as of the date of such Advance or 
Capital Expenditure Loan (except to the extent that such representations and 
warranties relate solely to an earlier date) and such representations and 
warranties shall survive the execution and delivery of this Agreement:

           5.1   NO ENCUMBRANCES.  Borrower has good and indefeasible title 
to the Collateral, free and clear of Liens except for Permitted Liens.

           5.2   ELIGIBLE ACCOUNTS.  The Eligible Accounts are bona fide 
existing obligations created by the sale and delivery of Inventory or the 
rendition of services to Account Debtors in the ordinary course of Borrower's 
business, unconditionally owed to Borrower without defenses, disputes, 
offsets, counterclaims, or rights of return or cancellation.  The property 
giving rise to such Eligible Accounts has been delivered to the Account 
Debtor, or to the Account Debtor's agent for immediate shipment to and 
unconditional acceptance by the Account Debtor.  Borrower has not received 
notice of actual or imminent bankruptcy, 

<PAGE>

insolvency, or material impairment of the financial condition of any Account 
Debtor regarding any Eligible Account.

           5.3   INTENTIONALLY OMITTED.

           5.4   EQUIPMENT.  All of the Equipment is used or held for use in 
Borrower's business and is fit for such purposes.

           5.5   LOCATION OF INVENTORY AND EQUIPMENT.  The Inventory and 
Equipment are not stored with a bailee, warehouseman, or similar party 
(without Foothill's prior written consent) and are located only at the 
locations identified on SCHEDULE 6.12 or otherwise permitted by SECTION 6.12.

           5.6   INVENTORY RECORDS.  Borrower keeps correct and accurate 
records itemizing and describing the kind, type, quality, and quantity of the 
Inventory, and Borrower's cost therefor.

           5.7   LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN.  The chief 
executive office of Borrower is located at the address indicated in the 
preamble to this Agreement and Borrower's FEIN is 77-0225590.

           5.8   DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.

                 (a)   Borrower is duly organized and existing and in good 
standing under the laws of the jurisdiction of its incorporation and 
qualified and licensed to do business in, and in good standing in, any state 
where the failure to be so licensed or qualified reasonably could be expected 
to cause a Material Adverse Change. 

                 (b)   Set forth on SCHEDULE 5.8, is a complete and accurate 
list of Borrower's direct and indirect Subsidiaries, showing: (i) the 
jurisdiction of their incorporation; (ii) the number of shares of each class 
of common and preferred stock authorized for each of such Subsidiaries; and 
(iii) the number and the percentage of the outstanding shares of each such 
class owned directly or indirectly by Borrower.  All of the outstanding 
capital stock of each such Subsidiary has been validly issued and is fully 
paid and non-assessable.

                 (c)   Except as set forth on SCHEDULE 5.8, no capital stock 
(or any securities, instruments, warrants, options, purchase rights, 
conversion or exchange rights, calls, commitments or claims of any character 
convertible into or exercisable for capital stock) of any direct or indirect 
Subsidiary of Borrower is subject to the issuance of any security, 
instrument, warrant, option, purchase right, conversion or exchange right, 
call, commitment or claim of any right, title, or interest therein or thereto.

<PAGE>
           5.9   DUE AUTHORIZATION; NO CONFLICT.

                 (a)   The execution, delivery, and performance by Borrower 
of this Agreement and the Loan Documents to which it is a party have been 
duly authorized by all necessary corporate action.

                 (b)   The execution, delivery, and performance by Borrower 
of this Agreement and the Loan Documents to which it is a party do not and 
will not (i) violate any provision of federal, state, or local law or 
regulation (including Regulations T, U, and X of the Federal Reserve Board) 
applicable to Borrower, the Governing Documents of Borrower, or any order, 
judgment, or decree of any court or other Governmental Authority binding on 
Borrower, (ii) conflict with, result in a breach of, or constitute (with due 
notice or lapse of time or both) a default under any material contractual 
obligation or material lease of Borrower, (iii) result in or require the 
creation or imposition of any Lien of any nature whatsoever upon any 
properties or assets of Borrower, other than Permitted Liens, or (iv) require 
any approval of stockholders or any approval or consent of any Person under 
any material contractual obligation of Borrower.

                 (c)   Other than the filing of appropriate financing 
statements, fixture filings, and mortgages, the execution, delivery, and 
performance by Borrower of this Agreement and the Loan Documents to which 
Borrower is a party do not and will not require any registration with, 
consent, or approval of, or notice to, or other action with or by, any 
federal, state, foreign, or other Governmental Authority or other Person.

                 (d)   This Agreement and the Loan Documents to which 
Borrower is a party, and all other documents contemplated hereby and thereby, 
when executed and delivered by Borrower will be the legally valid and binding 
obligations of Borrower, enforceable against Borrower in accordance with 
their respective terms, except as enforcement may be limited by equitable 
principles or by bankruptcy, insolvency, reorganization, moratorium, or 
similar laws relating to or limiting creditors' rights generally.

                 (e)   The Liens granted by Borrower to Foothill in and to 
its properties and assets pursuant to this Agreement and the other Loan 
Documents are validly created, perfected, and first priority Liens, subject 
only to Permitted Liens.

           5.10  LITIGATION.  There are no actions or proceedings pending by 
or against Borrower before any court or administrative agency and Borrower 
does not have knowledge or belief of any pending, threatened, or imminent 
litigation, governmental investigations, or claims, complaints, actions, or 
prosecutions involving Borrower or any guarantor of the Obligations, except 
for:  (a) ongoing collection matters in which Borrower is the plaintiff; (b) 
matters disclosed on SCHEDULE 5.10; and (c) matters arising after the date 
hereof that, if decided adversely to Borrower, would not cause a Material 
Adverse Change. 

           5.11  NO MATERIAL ADVERSE CHANGE.  All financial statements 
relating to 

<PAGE>

Borrower or any guarantor of the Obligations that have been delivered by 
Borrower to Foothill have been prepared in accordance with GAAP (except, in 
the case of unaudited financial statements, for the lack of footnotes and 
being subject to year-end audit adjustments) and fairly present Borrower's 
(or such guarantor's, as applicable) financial condition as of the date 
thereof and Borrower's results of operations for the period then ended.  
There has not been a Material Adverse Change with respect to Borrower (or 
such guarantor, as applicable) since the date of the latest financial 
statements submitted to Foothill on or before the Closing Date.

           5.12  SOLVENCY.  Borrower is Solvent.  No transfer of property is 
being made by Borrower and no obligation is being incurred by Borrower in 
connection with the transactions contemplated by this Agreement or the other 
Loan Documents with the intent to hinder, delay, or defraud either present or 
future creditors of Borrower.

           5.13  EMPLOYEE BENEFITS.  None of Borrower, any of its 
Subsidiaries, or any of their ERISA Affiliates maintains or contributes to 
any Benefit Plan.

           5.14  ENVIRONMENTAL CONDITION.  None of Borrower's properties or 
assets has ever been used by Borrower or, to the best of Borrower's 
knowledge, by previous owners or operators in the disposal of, or to produce, 
store, handle, treat, release, or transport, any Hazardous Materials.  None 
of Borrower's properties or assets has ever been designated or identified in 
any manner pursuant to any environmental protection statute as a Hazardous 
Materials disposal site, or a candidate for closure pursuant to any 
environmental protection statute.  No Lien arising under any environmental 
protection statute has attached to any revenues or to any real or personal 
property owned or operated by Borrower. Borrower has not received a summons, 
citation, notice, or directive from the Environmental Protection Agency or 
any other federal or state governmental agency concerning any action or 
omission by Borrower resulting in the releasing or disposing of Hazardous 
Materials into the environment.

     6.    AFFIRMATIVE COVENANTS.

           Borrower covenants and agrees that, so long as any credit 
hereunder shall be available and until full and final payment of the 
Obligations, Borrower shall do all of the following:

           6.1   ACCOUNTING SYSTEM.  Maintain a standard and modern system of 
accounting that enables Borrower to produce financial statements in 
accordance with GAAP, and maintain records pertaining to the Collateral that 
contain information as from time to time may be requested by Foothill. 
Borrower also shall keep a modern inventory reporting system that shows all 
additions, sales, claims, returns, and allowances with respect to the 
Inventory.

           6.2   COLLATERAL REPORTING.  Provide Foothill with the following 
documents at the following times in form satisfactory to Foothill: (a) on 
each Business Day, a sales journal, collection journal, and credit register 
since the last such schedule and a calculation of the Borrowing Base as of 
such date, (b) on a monthly basis and, in any event, by no later than 

<PAGE>

the 15th day of each month during the term of this Agreement, (1) a detailed 
calculation of the Borrowing Base, (2) a detailed aging, by total, of the 
Accounts, together with a reconciliation to the detailed calculation of the 
Borrowing Base previously provided to Foothill, and (3) an Inventory report 
specifying Borrower's cost and the wholesale market value of its Inventory by 
category, with additional detail showing additions to and deletions from the 
Inventory, (c) on a monthly basis and, in any event, by no later than the 
15th day of each month during the term of this Agreement, a summary aging, by 
vendor, of Borrower's accounts payable segregating current accounts payable 
from those that are past due by 30 days or more, and any book overdraft, (d) 
on each Business Day, notice of all returns, disputes, or claims, (e) upon 
request, copies of invoices in connection with the Accounts, customer 
statements, credit memos, remittance advices and reports, deposit slips, 
shipping and delivery documents in connection with the Accounts and for 
Inventory and Equipment acquired by Borrower, purchase orders and invoices, 
(f) on a quarterly basis, a detailed list of Borrower's customers, (g) on a 
monthly basis, a calculation of the Dilution for the prior month; (h) upon 
request, Borrower's electronic data and (i) such other reports as to the 
Collateral or the financial condition of Borrower as Foothill may reasonably 
request from time to time.

           6.3   FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.  Deliver to 
Foothill:  (a) as soon as available, but in any event within 30 days after 
the end of each month during each of Borrower's fiscal years, a company 
prepared balance sheet, income statement, and statement of cash flow covering 
Borrower's operations during such period; and (b) as soon as available, but 
in any event within 90 days after the end of each of Borrower's fiscal years, 
financial statements of Borrower for each such fiscal year, audited by 
independent certified public accountants reasonably acceptable to Foothill 
and certified, without any qualifications, by such accountants to have been 
prepared in accordance with GAAP, together with a certificate of such 
accountants addressed to Foothill stating that such accountants do not have 
knowledge of the existence of any Default or Event of Default under 
SECTIONS 6.1, 6.11, 6.13, 7.1, 7.10, 7.11, 7.12, 7.13 and 7.18.  Such audited 
financial statements shall include a balance sheet, profit and loss 
statement, and statement of cash flow and, if prepared, such accountants' 
letter to management.  If Borrower is a parent company of one or more 
Subsidiaries or Affiliates, or is a Subsidiary or Affiliate of another 
company, then, in addition to the financial statements referred to above, 
Borrower agrees to deliver financial statements prepared on a consolidating 
basis so as to present Borrower and each such related entity separately, and 
on a consolidated basis.

                 Together with the above, Borrower also shall deliver to 
Foothill Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, 
and Form 8-K Current Reports, and any other filings made by Borrower with the 
Securities and Exchange Commission, if any, as soon as the same are filed, or 
any other information that is provided by Borrower to its shareholders, and 
any other report reasonably requested by Foothill relating to the financial 
condition of Borrower.

                 Each month, together with the financial statements provided 
pursuant to SECTION 6.3(a), Borrower shall deliver to Foothill a certificate 
signed by its chief financial 

<PAGE>

officer to the effect that:  (i) all financial statements delivered or caused 
to be delivered to Foothill hereunder have been prepared in accordance with 
GAAP (except, in the case of unaudited financial statements, for the lack of 
footnotes and being subject to year-end audit adjustments) and fairly present 
the financial condition of Borrower, (ii) the representations and warranties 
of Borrower contained in this Agreement and the other Loan Documents are true 
and correct in all material respects on and as of the date of such 
certificate, as though made on and as of such date (except to the extent that 
such representations and warranties relate solely to an earlier date), (iii) 
for each month that also is the date on which a financial covenant in SECTION 
7.20 is to be tested, a Compliance Certificate demonstrating in reasonable 
detail compliance at the end of such period with the applicable financial 
covenants contained in SECTION 7.20, and (iv) on the date of delivery of such 
certificate to Foothill there does not exist any condition or event that 
constitutes a Default or Event of Default (or, in the case of clauses (i), 
(ii), or (iii), to the extent of any non-compliance, describing such 
non-compliance as to which he or she may have knowledge and what action 
Borrower has taken, is taking, or proposes to take with respect thereto).

           6.4   TAX RETURNS.  Deliver to Foothill copies of each of 
Borrower's future federal income tax returns, and any amendments thereto, 
within 30 days of the filing thereof with the Internal Revenue Service.

           6.5   INFORMATION ABOUT ACCOUNT DEBTORS.  Annually Borrower shall 
provide Foothill with updated financial information for each Account Debtor 
that is anticipated to have Accounts equal to or greater than 10.00% of 
Eligible Accounts at any time.

           6.6   RETURNS.  Cause returns and allowances, if any, as between 
Borrower and its Account Debtors to be on the same basis and in accordance 
with the usual customary practices of Borrower, as they exist at the time of 
the execution and delivery of this Agreement.  If, at a time when no Event of 
Default has occurred and is continuing, any Account Debtor returns any 
Inventory to Borrower, Borrower promptly shall determine the reason for such 
return and, if Borrower accepts such return, issue a credit memorandum (with 
a copy to be sent to Foothill) in the appropriate amount to such Account 
Debtor.  If, at a time when an Event of Default has occurred and is 
continuing, any Account Debtor returns any Inventory to Borrower, Borrower 
promptly shall determine the reason for such return and, if Foothill consents 
(which consent shall not be unreasonably withheld), issue a credit memorandum 
(with a copy to be sent to Foothill) in the appropriate amount to such 
Account Debtor.

           6.7   TITLE TO EQUIPMENT.  Upon Foothill's request, Borrower 
immediately shall deliver to Foothill, properly endorsed, any and all 
evidences of ownership of, certificates of title, or applications for title 
to any items of Equipment.

           6.8   MAINTENANCE OF EQUIPMENT.  Maintain the Equipment in good 
operating condition and repair (ordinary wear and tear excepted), and make 
all necessary replacements thereto so that the value and operating efficiency 
thereof shall at all times be 

<PAGE>

maintained and preserved.  Other than those items of Equipment that 
constitute fixtures on the Closing Date, Borrower shall not permit any item 
of Equipment to become a fixture to real estate or an accession to other 
property, and such Equipment shall at all times remain personal property.

           6.9   TAXES.  Cause all assessments and taxes, whether real, 
personal, or otherwise, due or payable by, or imposed, levied, or assessed 
against Borrower or any of its property to be paid in full, before 
delinquency or before the expiration of any extension period, except to the 
extent that the validity of such assessment or tax  shall be the subject of a 
Permitted Protest.  Borrower shall make due and timely payment or deposit of 
all such federal, state, and local taxes, assessments, or contributions 
required of it by law, and will execute and deliver to Foothill, on demand, 
appropriate certificates attesting to the payment thereof or deposit with 
respect thereto.  Borrower will make timely payment or deposit of all tax 
payments and withholding taxes required of it by applicable laws, including 
those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, 
and federal income taxes, and will, upon request, furnish Foothill with proof 
satisfactory to Foothill indicating that Borrower has made such payments or 
deposits.

           6.10  INSURANCE.

                 (a)   At its expense, keep the Collateral (other than 
Accounts) insured against loss or damage by fire, theft, explosion, 
sprinklers, and all other hazards and risks, and in such amounts, as are 
ordinarily insured against by other owners in similar businesses.  Borrower 
also shall maintain business interruption, public liability, product 
liability, and property damage insurance relating to Borrower's ownership and 
use of the Collateral, as well as insurance against larceny, embezzlement, 
and criminal misappropriation.

                 (b)   All such policies of insurance shall be in such form, 
with such companies, and in such amounts as may be reasonably satisfactory to 
Foothill.  All insurance required herein shall be written by companies which 
are authorized to do insurance business in the State of California.  All 
hazard insurance and such other insurance as Foothill shall specify, shall 
contain a mortgagee endorsement satisfactory to Foothill, showing Foothill as 
sole loss payee thereof, and shall contain a waiver of warranties.  Every 
policy of insurance referred to in this SECTION 6.10 shall contain an 
agreement by the insurer that it will not cancel such policy except after 30 
days prior written notice to Foothill and that any loss payable thereunder 
shall be payable notwithstanding any act or negligence of Borrower or 
Foothill which might, absent such agreement, result in a forfeiture of all or 
a part of such insurance payment.  Borrower shall deliver to Foothill 
certified copies of such policies of insurance and evidence of the payment of 
all premiums therefor.

                 (c)   Original policies or certificates thereof satisfactory 
to Foothill evidencing such insurance shall be delivered to Foothill at least 
30 days prior to the expiration of the existing or preceding policies.  
Borrower shall give Foothill prompt notice of any loss covered by such 
insurance, and Foothill shall have the right to adjust any loss.  Foothill 
shall 

<PAGE>

have the exclusive right to adjust all losses payable under any such 
insurance policies without any liability to Borrower whatsoever in respect of 
such adjustments.  Any monies received as payment for any loss under any 
insurance policy including the insurance policies mentioned above, shall be 
paid over to Foothill to be applied at the option of Foothill either to the 
prepayment of the Obligations without premium, in such order or manner as 
Foothill may elect, or shall be disbursed to Borrower under stage payment 
terms satisfactory to Foothill for application to the cost of repairs, 
replacements, or restorations.  All repairs, replacements, or restorations 
shall be effected with reasonable promptness and shall be of a value at least 
equal to the value of the items or property destroyed prior to such damage or 
destruction.  Upon the occurrence of an Event of Default, Foothill shall have 
the right to apply all prepaid premiums to the payment of the Obligations in 
such order or form as Foothill shall determine.

                 (d)   Borrower shall not take out separate insurance 
concurrent in form or contributing in the event of loss with that required to 
be maintained under this SECTION 6.10, unless Foothill is included thereon as 
named insured with the loss payable to Foothill under a standard mortgagee 
endorsement, or its local equivalent.  Borrower immediately shall notify 
Foothill whenever such separate insurance is taken out, specifying the 
insurer thereunder and full particulars as to the policies evidencing the 
same, and originals of such policies immediately shall be provided to 
Foothill.

           6.11  NO SETOFFS OR COUNTERCLAIMS.  Make payments hereunder and 
under the other Loan Documents by or on behalf of Borrower without setoff or 
counterclaim and free and clear of, and without deduction or withholding for 
or on account of, any federal, state, or local taxes.

           6.12  LOCATION OF INVENTORY AND EQUIPMENT.  Keep the Inventory and 
Equipment only at the locations identified on SCHEDULE 6.12; PROVIDED, 
HOWEVER, that Borrower may amend SCHEDULE 6.12 so long as such amendment 
occurs by written notice to Foothill not less than 30 days prior to the date 
on which the Inventory or Equipment is moved to such new location, so long as 
such new location is within the continental United States, and so long as, at 
the time of such written notification, Borrower provides any financing 
statements or fixture filings necessary to perfect and continue perfected 
Foothill's security interests in such assets and also provides to Foothill a 
Collateral Access Agreement.

           6.13  COMPLIANCE WITH LAWS.  Comply with the requirements of all 
applicable laws, rules, regulations, and orders of any governmental 
authority, including the Fair Labor Standards Act and the Americans With 
Disabilities Act, other than laws, rules, regulations, and orders the 
non-compliance with which, individually or in the aggregate, would not have 
and could not reasonably be expected to cause a Material Adverse Change.

           6.14  INTENTIONALLY OMITTED.

           6.15  LEASES.  Pay when due all rents and other amounts payable
under any leases to which Borrower is a party or by which Borrower's
properties and assets are bound, 

<PAGE>

unless such payments are the subject of a Permitted Protest.  To the extent 
that Borrower fails timely to make payment of such rents and other amounts 
payable when due under its leases, Foothill shall be entitled, in its 
discretion, to reserve an amount equal to such unpaid amounts against the 
Borrowing Base.

           6.16  YEAR 2000 COMPLIANCE.  Borrower's accounting and financial 
record systems are Year 2000 Compliant.

     7.    NEGATIVE COVENANTS.

           Borrower covenants and agrees that, so long as any credit 
hereunder shall be available and until full and final payment of the 
Obligations, Borrower will not do any of the following:

           7.1   INDEBTEDNESS.  Create, incur, assume, permit, guarantee, or 
otherwise become or remain, directly or indirectly, liable with respect to 
any Indebtedness, except:

                 (a)   Indebtedness evidenced by this Agreement;

                 (b)   Indebtedness set forth in SCHEDULE 7.1;

                 (c)   Indebtedness secured by Permitted Liens; and

                 (d)   refinancings, renewals, or extensions of Indebtedness 
permitted under clauses (b) and (c) of this SECTION 7.1 (and continuance or 
renewal of any Permitted Liens associated therewith) so long as: (i) the 
terms and conditions of such refinancings, renewals, or extensions do not 
materially impair the prospects of repayment of the Obligations by Borrower, 
(ii) the net cash proceeds of such refinancings, renewals, or extensions do 
not result in an increase in the aggregate principal amount of the 
Indebtedness so refinanced, renewed, or extended, (iii) such refinancings, 
renewals, refundings, or extensions do not result in a shortening of the 
average weighted maturity of the Indebtedness so refinanced, renewed, or 
extended, and (iv) to the extent that Indebtedness that is refinanced was 
subordinated in right of payment to the Obligations, then the subordination 
terms and conditions of the refinancing Indebtedness must be at least as 
favorable to Foothill as those applicable to the refinanced Indebtedness.

           7.2   LIENS.  Create, incur, assume, or permit to exist, directly 
or indirectly, any Lien on or with respect to any of its property or assets, 
of any kind, whether now owned or hereafter acquired, or any income or 
profits therefrom, except for Permitted Liens (including Liens that are 
replacements of Permitted Liens to the extent that the original Indebtedness 
is refinanced under SECTION 7.1(d) and so long as the replacement Liens only 
encumber those assets or property that secured the original Indebtedness).

           7.3   RESTRICTIONS ON FUNDAMENTAL CHANGES.  Enter into any merger, 

<PAGE>

consolidation, reorganization, or recapitalization, or reclassify its capital 
stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation 
or dissolution), or convey, sell, assign, lease, transfer, or otherwise 
dispose of, in one transaction or a series of transactions, all or any 
substantial part of its property or assets.

           7.4   DISPOSAL OF ASSETS.  Sell, lease, assign, transfer, or 
otherwise dispose of any of Borrower's properties or assets other than sales 
of Inventory to buyers in the ordinary course of Borrower's business as 
currently conducted.

           7.5   CHANGE NAME.  Change Borrower's name, FEIN, corporate 
structure (within the meaning of Section 9402(7) of the Code), or identity, 
or add any new fictitious name.

           7.6   GUARANTEE.  Guarantee or otherwise become in any way liable 
with respect to the obligations of any third Person except by endorsement of 
instruments or items of payment for deposit to the account of Borrower or 
which are transmitted or turned over to Foothill.

           7.7   NATURE OF BUSINESS.  Make any change in the principal nature 
of Borrower's business.

           7.8   PREPAYMENTS AND AMENDMENTS.

                 (a)   Except in connection with a refinancing permitted by 
SECTION 7.1(d), prepay, redeem, retire, defease, purchase, or otherwise 
acquire any Indebtedness owing to any third Person, other than the 
Obligations in accordance with this Agreement, and

                 (b)   Directly or indirectly, amend, modify, alter, 
increase, or change any of the terms or conditions of any agreement, 
instrument, document, indenture, or other writing evidencing  or concerning 
Indebtedness permitted under SECTIONS 7.1(b), (c), or (d).

           7.9   CHANGE OF CONTROL.  Cause, permit, or suffer, directly or 
indirectly, any Change of Control.

           7.10  CONSIGNMENTS.  Except for consigned Inventory at Borrower's 
distributors, consign any Inventory or sell any Inventory on bill and hold, 
sale or return, sale on approval, or other conditional terms of sale.

           7.11  DISTRIBUTIONS.  Make any distribution or declare or pay any 
dividends (in cash or other property, other than capital stock) on, or 
purchase, acquire, redeem, or retire any of Borrower's capital stock, of any 
class, whether now or hereafter outstanding; PROVIDED, HOWEVER, that Borrower 
may make open market purchases of its common stock so long as (a) all such 
purchases do not, in the aggregate, exceed $3,000,000 during the term of this 
Agreement, (b) after giving effect to each such purchase there shall exist at 
least $2,000,000 of 

<PAGE>

unused Borrowing Base availability under Section 2.1(a), (c) no Event of 
Default has occurred and is continuing, and (d) (i) if such purchase occurs 
on or before December 31, 1999, Foothill has given its consent thereto (which 
consent shall not be unreasonably withheld) or (ii) if such purchase occurs 
after December 31, 1999, Borrower can demonstrate to Foothill that it has 
achieved a net income of at least $1.00 for its fiscal year 1999.

           7.12  ACCOUNTING METHODS.  Modify or change its method of 
accounting or enter into, modify, or terminate any agreement currently 
existing, or at any time hereafter entered into with any third party 
accounting firm or service bureau for the preparation or storage of 
Borrower's accounting records without said accounting firm or service bureau 
agreeing to provide Foothill information regarding the Collateral or 
Borrower's financial condition.  Borrower waives the right to assert a 
confidential relationship, if any, it may have with any accounting firm or 
service bureau in connection with any information requested by Foothill 
pursuant to or in accordance with this Agreement, and agrees that Foothill 
may contact directly any such accounting firm or service bureau in order to 
obtain such information.

           7.13  INVESTMENTS.  Directly or indirectly make, acquire, or incur 
any liabilities (including contingent obligations) for or in connection with 
(a) the acquisition of the securities (whether debt or equity) of, or other 
interests in, a Person, (b) loans, advances, capital contributions, or 
transfers of property to a Person (except for loans to employees and 
Affiliates in an aggregate amount not to exceed $500,000 outstanding at any 
one time), or (c) the acquisition of all or substantially all of the 
properties or assets of a Person.

           7.14  TRANSACTIONS WITH AFFILIATES.  Directly or indirectly enter 
into or permit to exist any material transaction with any Affiliate of 
Borrower except for transactions that are in the ordinary course of 
Borrower's business, upon fair and reasonable terms, that are fully disclosed 
to Foothill, and that are no less favorable to Borrower than would be 
obtained in an arm's length transaction with a non-Affiliate.

           7.15  SUSPENSION.  Suspend or go out of a substantial portion of 
its business.

           7.16  COMPENSATION.  Increase the annual fee or per-meeting fees 
paid to directors during any year by more than 15% over the prior year; pay 
or accrue total cash compensation, during any year, to officers and senior 
management employees in an aggregate amount in excess of 130% of that paid or 
accrued in the prior year.

           7.17  USE OF PROCEEDS.  Use (a) the proceeds of the Advances for 
any purpose other than (i) on the Closing Date, to pay transactional costs 
and expenses incurred in connection with this Agreement, and (ii) thereafter, 
consistent with the terms and conditions hereof, for its lawful and permitted 
corporate purposes, and (b) the proceeds of the Capital Expenditure Loans 
made hereunder for any purpose other than to finance new Equipment in 
accordance with SECTION 2.4.

           7.18  CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND 

<PAGE>

EQUIPMENT WITH BAILEES.  Relocate its chief executive office to a new 
location without providing 30 days prior written notification thereof to 
Foothill and so long as, at the time of such written notification, Borrower 
provides any financing statements or fixture filings necessary to perfect and 
continue perfected Foothill's security interests and also provides to 
Foothill a Collateral Access Agreement with respect to such new location. The 
Inventory and Equipment shall not at any time now or hereafter be stored with 
a bailee, warehouseman, or similar party without Foothill's prior written 
consent.

           7.19  INTENTIONALLY OMITTED.

           7.20  FINANCIAL COVENANT.  Fail to maintain Tangible Net Worth of 
at least $30,000,000 at all times during the term of this Agreement, measured 
on a fiscal quarter ending basis; PROVIDED, HOWEVER that Foothill shall be 
entitled to reset this financial covenant for each fiscal quarter after 
December 31, 1999, based upon Borrower's financial projections for the year 
2000.

           7.21  CAPITAL EXPENDITURES.  Make capital expenditures in any 
fiscal year in excess of $15,000,000.

     8.    EVENTS OF DEFAULT.

           Any one or more of the following events shall constitute an event 
of default (each, an "Event of Default") under this Agreement:

           8.1   If Borrower fails to pay when due and payable or when 
declared due and payable, any portion of the Obligations (whether of 
principal, interest (including any interest which, but for the provisions of 
the Bankruptcy Code, would have accrued on such amounts), fees and charges 
due Foothill, reimbursement of Foothill Expenses, or other amounts 
constituting Obligations); PROVIDED, HOWEVER, that in the case of 
Overadvances that are caused by the charging of interest, fees, or Foothill 
Expenses to the Loan Account, such event shall not constitute an Event of 
Default if, within five days of incurring such Overadvance, Borrower repays, 
or otherwise eliminates, such Overadvance;

           8.2   (a) If Borrower fails to perform, keep, or observe any term, 
provision, condition, covenant, or agreement contained in SECTION 6.2 
(Collateral Reporting), 6.3 (Financial Statements, Reports, Certificates), 
6.4 (Tax Returns), 6.7 (Location of Inventory and Equipment), 6.3 (Compliance 
with Laws), or 6.15 (Leases) of this Agreement and such failure continues for 
a period of five Business Days; (b) If Borrower fails or neglects to perform, 
keep, or observe any term, provision, condition, covenant, or agreement 
contained in SECTION 6.1 (Accounting System) or 6.8 (Maintenance of 
Equipment) of this Agreement and such failure continues for a period of 10 
Business Days; or (c) If Borrower fails or neglects to perform, keep, or 
observe any other term, provision, condition, covenant, or agreement 
contained in this Agreement, or in any of the other Loan Documents (giving 
effect to any grace periods, cure periods, or required notices, if any, 
expressly provided for in such Loan Document); in each 

<PAGE>

case, other than any such term, provision, condition, covenant, or agreement 
that is the subject of another provision of this SECTION 8, in which event 
such other provision of this SECTION 8 shall govern;

           8.3   If there is a Material Adverse Change;

           8.4   If any material portion of Borrower's properties or assets 
is attached, seized, subjected to a writ or distress warrant, or is levied 
upon, or comes into the possession of any third Person;

           8.5   If an Insolvency Proceeding is commenced by Borrower;

           8.6   If an Insolvency Proceeding is commenced against Borrower 
and any of the following events occur:  (a) Borrower consents to the 
institution of the Insolvency Proceeding against it; (b) the petition 
commencing the Insolvency Proceeding is not timely controverted; (c) the 
petition commencing the Insolvency Proceeding is not dismissed within 60 
calendar days of the date of the filing thereof; PROVIDED, HOWEVER, that, 
during the pendency of such period, Foothill shall be relieved of its 
obligation to extend credit hereunder; (d) an interim trustee is appointed to 
take possession of all or a substantial portion of the properties or assets 
of, or to operate all or any substantial portion of the business of, 
Borrower; or (e) an order for relief shall have been issued or entered 
therein;

           8.7   If Borrower is enjoined, restrained, or in any way prevented 
by court order from continuing to conduct all or any material part of its 
business affairs;

           8.8   If a notice of Lien, levy, or assessment is filed of record 
with respect to any of Borrower's properties or assets by the United States 
Government, or any department, agency, or instrumentality thereof, or by any 
state, county, municipal, or governmental agency, or if any taxes or debts 
owing at any time hereafter to any one or more of such entities becomes a 
Lien, whether choate or otherwise, upon any of Borrower's properties or 
assets and the same is not paid on the payment date thereof;

           8.9   If a judgment or other claim becomes a Lien or encumbrance 
upon any material portion of Borrower's properties or assets;

           8.10  If there is a default in any material agreement to which 
Borrower is a party with one or more third Persons and such default (a) 
occurs at the final maturity of the obligations thereunder, or (b) results in 
a right by such third Person(s), irrespective of whether exercised, to 
accelerate the maturity of Borrower's obligations thereunder;

           8.11  If Borrower makes any payment on account of Indebtedness 
that has been contractually subordinated in right of payment to the payment 
of the Obligations, except to the extent such payment is permitted by the 
terms of the subordination provisions applicable to such Indebtedness;

<PAGE>

           8.12  If any material misstatement or misrepresentation exists at 
the time made in any warranty, representation, statement, or report made to 
Foothill by Borrower or any officer, employee, agent, or director of 
Borrower, or if any such warranty or representation is withdrawn; or

           8.13  If the obligation of any guarantor under its guaranty or 
other third Person under any Loan Document is limited or terminated by 
operation of law or by the guarantor or other third Person thereunder, or any 
such guarantor or other third Person becomes the subject of an Insolvency 
Proceeding.

     9.    FOOTHILL'S RIGHTS AND REMEDIES.

           9.1   RIGHTS AND REMEDIES.  Upon the occurrence, and during the 
continuation, of an Event of Default Foothill may, at its election, without 
notice of its election and without demand, do any one or more of the 
following, all of which are authorized by Borrower:

                 (a)   Declare all Obligations, whether evidenced by this 
Agreement, by any of the other Loan Documents, or otherwise, immediately due 
and payable;

                 (b)   Cease advancing money or extending credit to or for 
the benefit of Borrower under this Agreement, under any of the Loan 
Documents, or under any other agreement between Borrower and Foothill;

                 (c)   Terminate this Agreement and any of the other Loan 
Documents as to any future liability or obligation of Foothill, but without 
affecting Foothill's rights and security interests in the Collateral and 
without affecting the Obligations;

                 (d)   Settle or adjust disputes and claims directly with 
Account Debtors for amounts and upon terms which Foothill considers 
advisable, and in such cases, Foothill will credit Borrower's Loan Account 
with only the net amounts received by Foothill in payment of such disputed 
Accounts after deducting all Foothill Expenses incurred or expended in 
connection therewith;

                 (e)   Cause Borrower to hold all returned Inventory in trust 
for Foothill, segregate all returned Inventory from all other property of 
Borrower or in Borrower's possession and conspicuously label said returned 
Inventory as the property of Foothill;

                 (f)   Without notice to or demand upon Borrower or any 
guarantor, make such payments and do such acts as Foothill considers 
necessary or reasonable to protect its security interests in the Collateral.  
Borrower agrees to assemble the Collateral if Foothill so requires, and to 
make the Collateral available to Foothill as Foothill may designate.  
Borrower authorizes Foothill to enter the premises where the Collateral is 
located, to take and maintain 

<PAGE>

possession of the Collateral, or any part of it, and to pay, purchase, 
contest, or compromise any encumbrance, charge, or Lien that in Foothill's 
determination appears to conflict with its security interests and to pay all 
expenses incurred in connection therewith.  With respect to any of Borrower's 
owned or leased premises, Borrower hereby grants Foothill a license to enter 
into possession of such premises and to occupy the same, without charge, for 
up to 120 days in order to exercise any of Foothill's rights or remedies 
provided herein, at law, in equity, or otherwise;

                 (g)   Without notice to Borrower (such notice being 
expressly waived), and without constituting a retention of any collateral in 
satisfaction of an obligation (within the meaning of Section 9505 of the 
Code), set off and apply to the Obligations any and all (i) balances and 
deposits of Borrower held by Foothill (including any amounts received in the 
Lockbox Accounts), or (ii) indebtedness at any time owing to or for the 
credit or the account of Borrower held by Foothill;

                 (h)   Hold, as cash collateral, any and all balances and 
deposits of Borrower held by Foothill, and any amounts received in the 
Lockbox Accounts, to secure the full and final repayment of all of the 
Obligations;

                 (i)   Ship, reclaim, recover, store, finish, maintain, 
repair, prepare for sale, advertise for sale, and sell (in the manner 
provided for herein) the Collateral.  Foothill is hereby granted a license or 
other right to use, without charge, Borrower's labels, patents, copyrights, 
rights of use of any name, trade secrets, trade names, trademarks, service 
marks, and advertising matter, or any property of a similar nature, as it 
pertains to the Collateral, in completing production of, advertising for 
sale, and selling any Collateral and Borrower's rights under all licenses and 
all franchise agreements shall inure to Foothill's benefit;

                 (j)   Sell the Collateral at either a public or private 
sale, or both, by way of one or more contracts or transactions, for cash or 
on terms, in such manner and at such places (including Borrower's premises) 
as Foothill determines is commercially reasonable.  It is not necessary that 
the Collateral be present at any such sale;

                 (k)   Foothill shall give notice of the disposition of the 
Collateral as follows:

                       (1)   Foothill shall give Borrower and each holder of 
a security interest in the Collateral who has filed with Foothill a written 
request for notice, a notice in writing of the time and place of public sale, 
or, if the sale is a private sale or some other disposition other than a 
public sale is to be made of the Collateral, then the time on or after which 
the private sale or other disposition is to be made;

                       (2)   The notice shall be personally delivered or 
mailed, postage prepaid, to Borrower as provided in SECTION 12, at least 5 
days before the date fixed for the sale, or at least 5 days before the date 
on or after which the private sale or other disposition 

<PAGE>

is to be made; no notice needs to be given prior to the disposition of any 
portion of the Collateral that is perishable or threatens to decline speedily 
in value or that is of a type customarily sold on a recognized market.  
Notice to Persons other than Borrower claiming an interest in the Collateral 
shall be sent to such addresses as they have furnished to Foothill;

                       (3)   If the sale is to be a public sale, Foothill 
also shall give notice of the time and place by publishing a notice one time 
at least 5 days before the date of the sale in a newspaper of general 
circulation in the county in which the sale is to be held;

                 (l)   Foothill may credit bid and purchase at any public 
sale; and

                 (m)   Any deficiency that exists after disposition of the 
Collateral as provided above will be paid immediately by Borrower.  Any 
excess will be returned, without interest and subject to the rights of third 
Persons, by Foothill to Borrower.

           9.2   REMEDIES CUMULATIVE.  Foothill's rights and remedies under 
this Agreement, the Loan Documents, and all other agreements shall be 
cumulative.  Foothill shall have all other rights and remedies not 
inconsistent herewith as provided under the Code, by law, or in equity.  No 
exercise by Foothill of one right or remedy shall be deemed an election, and 
no waiver by Foothill of any Event of Default shall be deemed a continuing 
waiver.  No delay by Foothill shall constitute a waiver, election, or 
acquiescence by it.

     10.   TAXES AND EXPENSES.

           If Borrower fails to pay any monies (whether taxes, assessments, 
insurance premiums, or, in the case of leased properties or assets, rents or 
other amounts payable under such leases) due to third Persons, or fails to 
make any deposits or furnish any required proof of payment or deposit, all as 
required under the terms of this Agreement, then, to the extent that Foothill 
determines that such failure by Borrower could result in a Material Adverse 
Change, in its discretion and without prior notice to Borrower, Foothill may 
do any or all of the following:  (a) make payment of the same or any part 
thereof; (b) set up such reserves in Borrower's Loan Account as Foothill 
deems necessary to protect Foothill from the exposure created by such 
failure; or (c) obtain and maintain insurance policies of the type described 
in SECTION 6.10, and take any action with respect to such policies as 
Foothill deems prudent.  Any such amounts paid by Foothill shall constitute 
Foothill Expenses.  Any such payments made by Foothill shall not constitute 
an agreement by Foothill to make similar payments in the future or a waiver 
by Foothill of any Event of Default under this Agreement.  Foothill need not 
inquire as to, or contest the validity of, any such expense, tax, or Lien and 
the receipt of the usual official notice for the payment thereof shall be 
conclusive evidence that the same was validly due and owing.

<PAGE>

     11.   WAIVERS; INDEMNIFICATION.

           11.1  DEMAND; PROTEST; ETC.  Borrower waives demand, protest, 
notice of protest, notice of default or dishonor, notice of payment and 
nonpayment, nonpayment at maturity, release, compromise, settlement, 
extension, or renewal of accounts, documents, instruments, chattel paper, and 
guarantees at any time held by Foothill on which Borrower may in any way be 
liable.

           11.2  FOOTHILL'S LIABILITY FOR COLLATERAL.  So long as Foothill 
complies with its obligations, if any, under Section 9207 of the Code, 
Foothill shall not in any way or manner be liable or responsible for:  (a) 
the safekeeping of the Collateral; (b) any loss or damage thereto occurring 
or arising in any manner or fashion from any cause; (c) any diminution in the 
value thereof; or (d) any act or default of any carrier, warehouseman, 
bailee, forwarding agency, or other Person.  All risk of loss, damage, or 
destruction of the Collateral shall be borne by Borrower.

           11.3  INDEMNIFICATION.  Borrower shall pay, indemnify, defend, and 
hold Foothill, each Participant, and each of their respective officers, 
directors, employees, counsel, agents, and attorneys-in-fact (each, an 
"Indemnified Person") harmless (to the fullest extent permitted by law) from 
and against any and all claims, demands, suits, actions, investigations, 
proceedings, and damages, and all reasonable attorneys fees and disbursements 
and other costs and expenses actually incurred in connection therewith (as 
and when they are incurred and irrespective of whether suit is brought), at 
any time asserted against, imposed upon, or incurred by any of them in 
connection with or as a result of or related to the execution, delivery, 
enforcement, performance, and administration of this Agreement and any other 
Loan Documents or the transactions contemplated herein, and with respect to 
any investigation, litigation, or proceeding related to this Agreement, any 
other Loan Document, or the use of the proceeds of the credit provided 
hereunder (irrespective of whether any Indemnified Person is a party 
thereto), or any act, omission, event or circumstance in any manner related 
thereto (all the foregoing, collectively, the "Indemnified Liabilities").  
Borrower shall have no obligation to any Indemnified Person under this 
SECTION 11.3 with respect to any Indemnified Liability that a court of 
competent jurisdiction finally determines to have resulted from the gross 
negligence or willful misconduct of such Indemnified Person.  This provision 
shall survive the termination of this Agreement and the repayment of the 
Obligations.

     12.   NOTICES.

           Unless otherwise provided in this Agreement, all notices or 
demands by any party relating to this Agreement or any other Loan Document 
shall be in writing and (except for financial statements and other 
informational documents which may be sent by first-class mail, postage 
prepaid) shall be personally delivered or sent by registered or certified 
mail (postage prepaid, return receipt requested), overnight courier, or 
telefacsimile to Borrower or to Foothill, as the case may be, at its address 
set forth below:

<PAGE>

           IF TO BORROWER:   SILICON STORAGE TECHNOLOGY, INC.
                             1171 Sonora Court
                             Sunnyvale, California  94086
                             Attn:  Jeffrey L. Garon
                             Fax No. 408.735.9036

           WITH COPIES TO:   COOLEY GODWARD LLP
                             5 Palo Alto Square
                             Palo Alto, California 94306
                             Attn:  Mark P. Tanoury, Esq.
                             Fax No. 650.849.7400

           IF TO FOOTHILL:   FOOTHILL CAPITAL CORPORATION
                             11111 Santa Monica Boulevard
                             Suite 1500
                             Los Angeles, California 90025-3333
                             Attn:  Business Finance Division Manager
                             Fax No. 310.478.9788

           WITH COPIES TO:   BUCHALTER, NEMER, FIELDS & YOUNGER
                             601 S. Figueroa Street, Suite 2400
                             Los Angeles, California 90017
                             Attn:  Robert C. Colton, Esq.
                             Fax No. 213.896.0400

           The parties hereto may change the address at which they are to 
receive notices hereunder, by notice in writing in the foregoing manner given 
to the other.  All notices or demands sent in accordance with this SECTION 12,
other than notices by Foothill in connection with Sections 9504 or 9505 of 
the Code, shall be deemed received on the earlier of the date of actual 
receipt or 3 days after the deposit thereof in the mail.  Borrower 
acknowledges and agrees that notices sent by Foothill in connection with 
Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the 
mail or personally delivered, or, where permitted by law, transmitted by 
telefacsimile or other similar method set forth above.

<PAGE>

     13.   CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

           THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS 
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT), THE 
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE 
RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING 
HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED 
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF 
CALIFORNIA.  THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN 
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED 
AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF 
LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY 
OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS 
AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY.  
EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER 
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON 
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN 
ACCORDANCE WITH THIS SECTION 13.  BORROWER AND FOOTHILL HEREBY WAIVE THEIR 
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON 
OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS 
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY 
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  EACH OF BORROWER AND 
FOOTHILL REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND 
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL 
COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED 
AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

     14.   DESTRUCTION OF BORROWER'S DOCUMENTS.

           All documents, schedules, invoices, agings, or other papers 
delivered to Foothill may be destroyed or otherwise disposed of by Foothill 
four months after they are delivered to or received by Foothill, unless 
Borrower requests, in writing, the return of said documents, schedules, or 
other papers and makes arrangements, at Borrower's expense, for their return.

<PAGE>

     15.   GENERAL PROVISIONS.

           15.1  EFFECTIVENESS.  This Agreement shall be binding and deemed 
effective when executed by Borrower and Foothill.

           15.2  SUCCESSORS AND ASSIGNS.  This Agreement shall bind and inure 
to the benefit of the respective successors and assigns of each of the 
parties; PROVIDED, HOWEVER, that Borrower may not assign this Agreement or 
any rights or duties hereunder without Foothill's prior written consent and 
any prohibited assignment shall be absolutely void.  No consent to an 
assignment by Foothill shall release Borrower from its Obligations. Foothill 
may assign this Agreement and its rights and duties hereunder and no consent 
or approval by Borrower is required in connection with any such assignment.  
Foothill reserves the right to sell, assign, transfer, negotiate, or grant 
participations in all or any part of, or any interest in Foothill's rights 
and benefits hereunder.  In connection with any such assignment or 
participation, Foothill may disclose all documents and information which 
Foothill now or hereafter may have relating to Borrower or Borrower's 
business.  To the extent that Foothill assigns its rights and obligations 
hereunder to a third Person, Foothill thereafter shall be released from such 
assigned obligations to Borrower and such assignment shall effect a novation 
between Borrower and such third Person.

           15.3  SECTION HEADINGS.  Headings and numbers have been set forth 
herein for convenience only.  Unless the contrary is compelled by the 
context, everything contained in each section applies equally to this entire 
Agreement.

           15.4  INTERPRETATION.  Neither this Agreement nor any uncertainty 
or ambiguity herein shall be construed or resolved against Foothill or 
Borrower, whether under any rule of construction or otherwise. On the 
contrary, this Agreement has been reviewed by all parties and shall be 
construed and interpreted according to the ordinary meaning of the words used 
so as to fairly accomplish the purposes and intentions of all parties hereto.

           15.5  SEVERABILITY OF PROVISIONS.  Each provision of this 
Agreement shall be severable from every other provision of this Agreement for 
the purpose of determining the legal enforceability of any specific provision.

           15.6  AMENDMENTS IN WRITING.  This Agreement can only be amended 
by a writing signed by both Foothill and Borrower.

           15.7  COUNTERPARTS; TELEFACSIMILE EXECUTION.  This Agreement may 
be executed in any number of counterparts and by different parties on 
separate counterparts, each of which, when executed and delivered, shall be 
deemed to be an original, and all of which, when taken together, shall 
constitute but one and the same Agreement.  Delivery of an executed 
counterpart of this Agreement by telefacsimile shall be equally as effective 
as delivery of an original executed counterpart of this Agreement.  Any party 
delivering an executed counterpart of this Agreement by telefacsimile also 
shall deliver an original executed 

<PAGE>

counterpart of this Agreement but the failure to deliver an original executed 
counterpart shall not affect the validity, enforceability, and binding effect 
of this Agreement.

           15.8  REVIVAL AND REINSTATEMENT OF OBLIGATIONS.  If the incurrence 
or payment of the Obligations by Borrower or any guarantor of the Obligations 
or the transfer by either or both of such parties to Foothill of any property 
of either or both of such parties should for any reason subsequently be 
declared to be void or voidable under any state or federal law relating to 
creditors' rights, including provisions of the Bankruptcy Code relating to 
fraudulent conveyances, preferences, and other voidable or recoverable 
payments of money or transfers of property (collectively, a "Voidable 
Transfer"), and if Foothill is required to repay or restore, in whole or in 
part, any such Voidable Transfer, or elects to do so upon the reasonable 
advice of its counsel, then, as to any such Voidable Transfer, or the amount 
thereof that Foothill is required or elects to repay or restore, and as to 
all reasonable costs, expenses, and attorneys fees of Foothill related 
thereto, the liability of Borrower or such guarantor automatically shall be 
revived, reinstated, and restored and shall exist as though such Voidable 
Transfer had never been made.

           15.9  INTEGRATION.  This Agreement, together with the other Loan 
Documents, reflects the entire understanding of the parties with respect to 
the transactions contemplated hereby and shall not be contradicted or 
qualified by any other agreement, oral or written, before the date hereof.

           IN WITNESS WHEREOF, the parties hereto have caused this Agreement 
to be executed in Los Angeles, California.
                                       
                                     SILICON STORAGE TECHNOLOGY, INC.,
                                     a California corporation


                                     By  /s/ Jeffrey L. Garon 
                                         ---------------------------------------
                                     Title: VP/CFO                           
                                            ------------------------------------


                                     FOOTHILL CAPITAL CORPORATION,
                                     a California corporation


                                     By  /s/ Brenda B. Foreman           
                                         ---------------------------------------
                                     Title: S.V.P.             
                                            ------------------------------------